-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F2zXjSvdj+tpTUjXujmPFQr0HVnC1sLKumWEokLo3MY9Le6tUC9ZVbBYt9PDMG9j 8T+7OBZPN1iASe6UK9LsYQ== 0000950134-99-001634.txt : 19990316 0000950134-99-001634.hdr.sgml : 19990316 ACCESSION NUMBER: 0000950134-99-001634 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 46 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APARTMENT INVESTMENT & MANAGEMENT CO CENTRAL INDEX KEY: 0000922864 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 841259577 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-60355 FILM NUMBER: 99564705 BUSINESS ADDRESS: STREET 1: 1873 S BELLAIRE ST STREET 2: SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE ST STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-60355-01 FILM NUMBER: 99564706 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222-8101 BUSINESS PHONE: 3037578101 S-4/A 1 AMENDMENT NO. 8 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1999 REGISTRATION NO. 333-60355 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- AMENDMENT NO. 8 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- APARTMENT INVESTMENT AND MANAGEMENT COMPANY AIMCO PROPERTIES, L.P. (Exact name of co-registrant as specified in its charter) MARYLAND 84-1259577 DELAWARE 84-1275621 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization) 1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER KOMPANIEZ DENVER, COLORADO 80222 PRESIDENT (303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR DENVER, COLORADO 80222 (303) 757-8101 FAX: (303) 753-9538 (Address, including zip code, and telephone number, (Name, address, including zip code, and telephone including area code, of co-registrants' principal number, executive offices) including area code, of agent for service)
--------------------- Copy to: JONATHAN L. FRIEDMAN SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 SOUTH GRAND AVENUE LOS ANGELES, CALIFORNIA 90071 (213) 687-5000 FAX: (213) 687-5600 --------------------- Approximate Date of Commencement of Proposed Sale to the Public: From time to time after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and if there is compliance with General Instruction G, check the following box. [ ] If the Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2) - ------------------------------------------------------------------------------------------------------------------------------ Preferred Stock, par value $.01 per share(3).................... - ------------------------------------------------------------------------------------------------------------------------------ Class A Common Stock, par value $.01 per share(3)............... - ------------------------------------------------------------------------------------------------------------------------------ Partnership Preferred Units(4).... $200,000,000 $200,000,000 - ------------------------------------------------------------------------------------------------------------------------------ Partnership Common Units(4)....... $200,000,000 $200,000,000 - ------------------------------------------------------------------------------------------------------------------------------ Total.................... $1,000,000,000 (1) $1,000,000,000 $295,000 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
(1) To be determined, from time to time, by the Registrants in connection with the issuance of the securities registered hereunder. (2) Calculated pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933, as amended. (3) To be issued by Apartment Investment and Management Company ("AIMCO"). The amount of such securities registered hereby includes (i) shares of Preferred Stock and Class A Common Stock of AIMCO issuable in exchange for Partnership Preferred Units or Partnership Common Units of AIMCO Properties, L.P. tendered for redemption pursuant to the agreement of limited partnership of AIMCO Properties, L.P., plus such additional number of shares of Preferred Stock and Class A Common Stock as may be issuable pursuant to the antidilution adjustment provisions of such agreement and (ii) shares of Class A Common Stock of AIMCO issuable upon conversion of shares of Preferred Stock of AIMCO. In no event will the aggregate maximum offering price of all securities registered under this Registration Statement by AIMCO exceed $600,000,000. (4) To be issued by AIMCO Properties, L.P. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This filing includes (i) a base prospectus to be used for the offering and issuance of securities in connection with acquisitions of businesses, properties, securities or other assets, (ii) 34 prospectus supplements relating to exchange offers for units of limited partnership interest in the limited partnerships set forth below, (iii) a form of a Letter of Transmittal and (iv) a form of Cover Letter to the holders of the partnership units. Baywood Apartments, Ltd. Buccaneer Trace Limited Partnership Burgundy Court Associates, L.P. Calmark/Fort Collins, Ltd. Catawba Club Associates, L.P. Cedar Tree Investors Limited Partnership Chapel Hill, Limited Coastal Commons Limited Partnership Four Quarters Habitat Apartment Associates, Ltd. Georgetown of Columbus Associates, L.P. La Colina Partners, Ltd. Lake Eden Associates, L.P. Landmark Associates, Ltd. Northbrook Apartments, Ltd. Orchard Park Apartments Limited Partnership Park Towne Place Associates Limited Partnership Quail Run Associates, L.P. Ravensworth Associates Limited Partnership Rivercreek Apartments Limited Partnership Rivercrest Apartments Ltd. Salem Arms of Augusta Limited Partnership Shaker Square, L.P. Shannon Manor Apartments, a Limited Partnership Sharon Woods, L.P. Snowden Village Associates, L.P. Sturbrook Investors, Ltd. Sycamore Creek Associates, L.P. Texas Residential Investors Limited Partnership Thurber Manor Associates, L.P. Villa Nova, Limited Partnership Walker Springs, Limited Wingfield Investors Limited Partnership Woodmere Associates, L.P. Yorktown Towers Associates In accordance with Rule 472(b) the Registrants have not refiled the 57 prospectus supplements for the 56 partnerships listed below which were filed with previous Amendments since no changes have yet been made to such documents. Such prospectus supplements remain a part of this Registration Statement and will be refiled, as appropriate, in future Amendments. This Registration Statement will not be used for exchange offers with respect to the following partnerships until the Staff of the Securities and Exchange Commission has completed its review of the related prospectus supplements: Angeles Income Properties, Ltd. 6 Angeles Income Properties, Ltd. III Angeles Income Properties, Ltd. II Angeles Income Properties, Ltd. IV Angeles Opportunity Properties, Ltd. Angeles Partners VII Angeles Partners VIII Angeles Partners IX Angeles Partners X Angeles Partners XI Angeles Partners XII Angeles Partners XIV Brampton Associates Limited Partnership Casa Del Mar Associates Limited Partnership Century Properties Fund XIX Century Properties Fund XVI Century Properties Fund XVIII Century Properties Growth Fund XXII Chestnut Hill Associates Limited Partnership Consolidated Capital Institutional Properties/3 Consolidated Capital Institutional Properties/2 Consolidated Capital Properties III Consolidated Capital Properties IV Consolidated Capital Properties V Consolidated Capital Properties VI Davidson Diversified Real Estate I, L.P. Davidson Diversified Real Estate II, L.P. Davidson Diversified Real Estate III, L.P. Davidson Growth Plus, L.P. Davidson Income Real Estate, L.P. DFW Apartment Investors Limited Partnership DFW Residential Investors Limited Partnership Drexel Burnham Lambert Real Estate Associates II Fox Strategic Housing Income Partners HCW Pension Real Estate Fund Limited Partnership Investors First-Staged Equity Johnstown/Consolidated Income Partners Minneapolis Associates II Limited Partnership Multi-Benefit Realty Fund '87-1-Class B* Multi-Benefit Realty Fund '87-1-Class A* National Property Investors 8 Olde Mill Investors Limited Partnership Riverside Park Associates L.P. Shelter Properties III Shelter Properties IV Shelter Properties VI Shelter Properties VII Limited Partnership Shearson/Calmark Heritage Park II, Ltd. Springhill Lake Investors Limited Partnership U.S. Realty Partners Limited Partnership United Investors Growth Properties United Investors Growth Properties II United Investors Income Properties Winrock-Houston Limited Partnership Winthrop Apartment Investors Limited Partnership Winthrop Growth Investors 1 Limited Partnership Winthrop Texas Investors Limited Partnership - --------------- * This offer will be combined into one prospectus supplement. 3 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED MARCH 15, 1999 PROSPECTUS APARTMENT INVESTMENT AND MANAGEMENT COMPANY $600,000,000 OF PREFERRED STOCK AND CLASS A COMMON STOCK AIMCO PROPERTIES, L.P. $200,000,000 OF PARTNERSHIP PREFERRED UNITS $200,000,000 OF PARTNERSHIP COMMON UNITS We may offer and sell these securities in connection with acquisitions of businesses, properties, securities or other assets. In addition, we may issue our Class A Common Stock upon conversion of shares our Preferred Stock, and we may also issue shares of our Preferred Stock and shares of our Class A Common Stock in exchange for our Partnership Preferred Units or our Partnership Common Units tendered for redemption. Apartment Investment and Management Company has elected to be taxed for Federal income tax purposes as a REIT. Our Class A Common Stock is listed on the New York Stock Exchange under the symbol "AIV." On March 5, 1999, the last reported sales price of our Class A Common Stock on the NYSE was $37.50 per share. There is no public market for our Partnership Preferred Units or our Partnership Common Units. However, after a one-year holding period, each of our Partnership Common Units may be redeemed in exchange for a share of our Class A Common Stock or, at our option, a cash amount equal to the market value of one share of our Class A Common Stock at the time of the redemption (subject to antidilution adjustments). SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, INCLUDING WITHOUT LIMITATION, THE FOLLOWING RISKS: - Our acquisition and development activities expose us to several negative factors, including difficulty in managing our rapid growth, the incurrence of unforeseen costs, and the possible failure to realize projected occupancy and rental rates. - Our organizational documents do not limit the amount of debt that we may incur, and our Board of Directors may change our leverage policy at any time. Our cash flow from operations might be insufficient to make required debt payments, and we might be unable to refinance our debt at all or on terms as favorable as the terms of our existing debt. In addition, we are subject to debt covenants that may restrict our ability to make distributions to investors. - Our real estate investment and management activities expose us to several potentially negative factors that are beyond our control such as local economic conditions, intense competition, potential environmental liabilities and change of laws, any of which could negatively affect our financial condition or results of operations. - If Apartment Investment and Management Company fails to qualify as a REIT, (i) it would not be allowed a deduction for dividends it pays, (ii) it would be subject to federal income tax at corporate rates, (iii) it might need to borrow funds or liquidate investments on unfavorable terms in order to pay the applicable tax and (iv) it would no longer be required to make distributions to stockholders. - Our charter limits the number of shares of our stock that may be held by any one investor to 8.7% (15% in the case of certain pension trusts, registered investment companies and Terry Considine, Chairman of the Board of Directors and Chief Executive Officer of AIMCO). Consequently, our stockholders are limited in their ability to effect a change of our control. - We and certain of our officers and/or directors and unconsolidated subsidiaries have entered into, and may in the future enter into, certain transactions that may result in conflicts of interest between us and such officers and/or directors and unconsolidated subsidiaries. - Investors in our partnership units must hold their units for one year, subject to certain exceptions. Thereafter investors may transfer such partnership units, subject to the satisfaction of certain conditions, including the general partner's right of first refusal. Holders of our partnership units do not have the ability to vote for or remove the general partner, so they can not effect a change of control of AIMCO Properties, L.P. To the extent not otherwise described herein, the form in which the securities are to be issued, and the terms of such securities, including without limitation, their specific designation, or aggregate initial offering price, rate and timing of distributions or dividends, redemption, conversion and exchange terms, voting rights, and other specific terms will be set forth in a Prospectus Supplement, together with the terms of offering of such securities. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. The date of this Prospectus is March , 1999. 4 TABLE OF CONTENTS
PAGE ---- THE COMPANY..................................... 1 RISK FACTORS.................................... 2 Risks of Acquisition and Development Activities.................................. 2 Risks Associated With Debt Financing.......... 3 Moody's Negative Outlook for AIMCO Ratings.... 3 Increases in Interests Rates May Increase our Interest Expense............................ 3 Risks of Interest Rate Hedging Arrangements... 3 Covenant Restrictions May Limit Our Ability to Make Payments to Our Investors.............. 4 We Depend on Distributions and Other Payments from Our Subsidiaries....................... 4 Real Estate Investment Risks.................. 4 Possible Environmental Liabilities............ 4 Laws Benefitting Disabled Persons May Result in Unanticipated Expenses................... 5 Risks Relating to Regulation of Affordable Housing..................................... 5 The Loss of Property Management Contracts Would Reduce Our Revenues................... 5 Dependence on Certain Executive Officers...... 5 Possible Conflicts of Interest; Transactions with Affiliates............................. 6 Tax Risks..................................... 6 Possible Adverse Consequences of Limits on Ownership of Shares......................... 7 Our Charter and Maryland Law May Limit the Ability of a Third Party to Acquire Control of the Company.............................. 8 Risks Associated with the Year 2000 Issue..... 8 Risks Associated With an Investment in OP Units....................................... 9 SECURITIES COVERED BY THIS PROSPECTUS........... 15 RATIO OF EARNINGS TO FIXED CHARGES.............. 17 SELECTED HISTORICAL FINANCIAL DATA.............. 18 PER SHARE AND PER UNIT DATA..................... 21 Per Share Data................................ 21 Per Unit Data................................. 21 Stock Prices, Dividends and Distributions..... 22 BUSINESS OF THE COMPANY......................... 23 Operating and Financial Strategies............ 23 Growth Strategies............................. 24 Property Management Strategies................ 25 Accounting Policies and Definitions........... 25 Policies of the Company with Respect to Certain Other Activities.................... 26 Contribution and Management Agreement......... 28 Financial Information About Industry Segments.................................... 28 Competition................................... 28 Regulation.................................... 29 Insurance..................................... 29 Employees..................................... 29 1998 Developments............................. 30 Potential Property Acquisitions............... 32 Litigation.................................... 32 Year 2000 Readiness........................... 32 DESCRIPTION OF PREFERRED STOCK.................. 35 General....................................... 35 Dividends..................................... 35 Convertibility................................ 36
PAGE ---- Redemption and Sinking Fund................... 36 Liquidation Rights............................ 36 Voting Rights................................. 37 Miscellaneous................................. 37 Other Rights.................................. 38 Transfer Agent and Registrar.................. 38 Class B Preferred Stock....................... 38 Class C Preferred Stock....................... 39 Class D Preferred Stock....................... 40 Class G Preferred Stock....................... 41 Class H Preferred Stock....................... 42 Class J Preferred Stock....................... 43 Class K Preferred Stock....................... 44 DESCRIPTION OF COMMON STOCK..................... 45 General....................................... 45 Class A Common Stock.......................... 46 Restrictions on Transfer...................... 46 Business Combinations......................... 47 Control Share Acquisitions.................... 48 DESCRIPTION OF OP UNITS......................... 48 General....................................... 48 Purpose and Business.......................... 49 Management by the AIMCO GP.................... 49 Management Liability and Indemnification...... 50 Compensation and Fees......................... 50 Fiduciary Responsibilities.................... 50 Class B Partnership Preferred Units........... 51 Class C Partnership Preferred Units........... 52 Class D Partnership Preferred Units........... 52 Class E Partnership Preferred Units........... 52 Class F Partnership Preferred Units........... 52 Class G Partnership Preferred Units........... 53 Class H Partnership Preferred Units........... 53 Class J Partnership Preferred Units........... 53 Class K Partnership Preferred Units........... 53 Class One Partnership Preferred Units......... 54 High Performance Units........................ 55 Distributions................................. 55 Allocations of Net Income and Net Loss........ 56 Withholding................................... 57 Return of Capital............................. 57 Redemption Rights............................. 57 Partnership Right to Call Common OP Units..... 58 Transfers and Withdrawals..................... 58 Issuance of Capital Stock by AIMCO............ 59 Dilution...................................... 59 Amendment of the AIMCO Operating Partnership Agreement................................... 59 Procedures for Actions and Consents of Partners.................................... 60 Records and Accounting; Fiscal Year........... 60 Reports....................................... 61 Tax Matters................................... 61 Dissolution and Winding Up.................... 61 COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO..................................... 63 COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK......................................... 72
i 5
PAGE ---- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE AIMCO OPERATING PARTNERSHIP............ 75 Overview...................................... 75 Results of Operations......................... 75 Liquidity and Capital Resources............... 78 Capital Expenditures.......................... 79 Funds from Operations......................... 80 Contingencies................................. 81 High Performance Units........................ 83 Year 2000 Readiness Disclosure................ 84 Liquidity and Capital Resources............... 92 Capital Expenditures.......................... 95 Funds from Operations......................... 96 Cash Flows.................................... 97 Commitments and Contingencies................. 97 FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS.................................. 101 General....................................... 101 Tax Aspects of AIMCO's Investments in Partnerships................................ 105 Taxation of Management Subsidiaries........... 107 Taxation of Taxable Domestic Stockholders..... 107 Taxation of Foreign Stockholders.............. 108 Information Reporting Requirements and Backup Withholding................................. 110 Taxation of Tax-Exempt Stockholders........... 110 FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS................ 111
PAGE ---- Partnership Status............................ 111 Taxation of OP Unitholders.................... 113 Allocations of AIMCO Operating Partnership Profits and Losses.......................... 113 Tax Basis of a Partnership Interest........... 113 Cash Distributions............................ 113 Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership.......... 114 Limitations on Deductibility of Losses........ 115 Section 754 Election.......................... 116 Depreciation.................................. 116 Sale, Redemption, or Exchange of OP Units..... 117 Termination of the AIMCO Operating Partnership................................. 117 Alternative Minimum Tax....................... 118 Information Returns and Audit Procedures...... 118 Taxation of Foreign OP Unitholders............ 119 OTHER TAX CONSEQUENCES.......................... 119 Possible Legislative or Other Actions Affecting REITs............................. 119 State, Local and Foreign Taxes................ 119 WHERE YOU CAN FIND MORE INFORMATION............. 119 LEGAL MATTERS................................... 121 EXPERTS......................................... 121 INDEX TO FINANCIAL STATEMENTS OF AIMCO PROPERTIES, L.P............................... F-1 APPENDIX A: GLOSSARY............................ A-1 APPENDIX B: THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P........................................... B-1
ii 6 THE COMPANY Apartment Investment and Management Company ("AIMCO"), a Maryland corporation formed on January 10, 1994, is a self-administered and self-managed REIT engaged in the ownership, acquisition, development, expansion and management of multi-family apartment properties. As of December 31, 1998, we owned or managed 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that, as of December 31, 1998, we were the largest owner and manager of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. We conduct substantially all of our operations through AIMCO Properties, L.P., a Delaware limited partnership (the "AIMCO Operating Partnership" or the "Partnership"). Our wholly owned subsidiary, AIMCO-GP, Inc. (the "AIMCO GP") is the sole general partner of the AIMCO Operating Partnership. Through the AIMCO GP and another of our wholly owned subsidiaries, AIMCO-LP, Inc. (the "Special Limited Partner"), as of December 31, 1998, we owned approximately an 83% interest in the AIMCO Operating Partnership. We manage apartment properties for third parties and affiliates through unconsolidated subsidiaries that we refer to as the "management companies." Generally, when we refer to "we," "us" or the "Company" in this prospectus, we are referring to AIMCO, the AIMCO Operating Partnership, the management companies and their respective subsidiaries. Our principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and our telephone number is (303) 757-8101. 1 7 RISK FACTORS Before you invest in our securities, you should be aware that there are various risks, including those described below. You should consider carefully these risk factors together with all of the other information included in this prospectus before you decide to purchase our securities. Some of the information in this prospectus may contain forward-looking statements. Such statements can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other "forward-looking" information. When considering such forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. The risk factors noted in this section and other factors noted throughout this prospectus, including certain risks and uncertainties, could cause our actual results to differ materially from those contained in any forward-looking statement. RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES Generally. The selective acquisition, development and expansion of apartment properties is one component of our growth strategy. However, we can make no assurance as to our ability to identify or complete transactions in the future. Although we seek to acquire, develop and expand properties only when such activities are accretive on a per share basis, such transactions may fail to perform in accordance with our expectations. When we develop or expand properties, we are subject to the risks that: - costs may exceed original estimates; - projected occupancy and rental rates at the property may not be realized; - financing may not be available on favorable terms; - construction and lease-up may not be completed on schedule; - we may experience difficulty or delays in obtaining necessary zoning, land-use, building, occupancy and other governmental permits and authorizations; and - our return on investment may be lower than expected. We May Have Difficulty Managing Our Rapid Growth. We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned or managed properties from 132 apartment properties with 29,343 units to 2,147 apartment properties with 379,363 units as of December 31, 1998. These acquisitions have included purchases of properties and interests in entities that own or manage properties, as well as corporate mergers. Our recent merger with Insignia Financial Group, Inc. ("Insignia") is our largest acquisition so far. Our ability to successfully integrate acquired businesses and properties depends on our ability to: - attract and retain qualified personnel; - integrate the personnel and operations of the acquired businesses; - maintain uniform standards, controls, procedures and policies; and - maintain adequate accounting and information systems. We can provide no assurance that we will be able to accomplish these goals and successfully integrate any acquired businesses or properties. If we fail to successfully integrate such businesses, our results of operations could be adversely affected. Litigation Associated with Partnership Acquisitions. We have engaged in, and intend to continue to engage in, the selective acquisition of interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited 2 8 partners' interests in the partnership. In these transactions, we are subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. Although we intend to comply with our fiduciary obligations and relevant partnership agreements, we may incur additional costs in connection with the defense or settlement of such litigation. In some cases, such litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. Such litigation could also have a material adverse effect on our results of operations. RISKS ASSOCIATED WITH DEBT FINANCING Our strategy is generally to incur debt to increase the return on our equity while maintaining acceptable interest coverage ratios. We seek to maintain a ratio of free cash flow to combined interest expense and preferred stock dividends of between 2:1 and 3:1. However, our Board of Directors could change this strategy at any time and increase our leverage. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. We are also subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt with a consequent loss of income and asset value to us. As of September 30, 1998, 95% of the properties that we own or control and 41% of our assets were encumbered by debt. On a pro forma basis, giving effect to the recent Insignia merger, as of September 30, 1998, we had $1,659 million of indebtedness outstanding on a consolidated basis, of which $1,359 million was secured. MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative to reflect its concerns surrounding our ability to successfully implement our financial strategy while maintaining a prudent capital structure as a result of more difficult general capital market conditions. Moody's noted that our access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs and assigned a "ba3" rating to a class of preferred stock proposed to be issued by us. Moody's indicated that its rating action reflects our increasing leveraged profile, including high levels of secured debt and preferred stock, limited financial flexibility and integration risks resulting from the merger with Insignia. Moody's also noted our high level of encumbered properties and material investments in loans to highly leveraged partnerships in which we own a general partnership interest. At the same time, Moody's, Standard & Poors and Duff & Phelps confirmed their existing ratings on our preferred stock and senior debt. INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE As of December 31, 1998, approximately $365 million of our debt was subject to variable interest rates. An increase in interest rates could increase our interest expense and adversely affect our cash flow and our ability to service our indebtedness and make distributions. RISKS OF INTEREST RATE HEDGING ARRANGEMENTS From time to time, in anticipation of refinancing debt, we enter into agreements to reduce the risks associated with increases in short term interest rates. Although these agreements provide us with some protection against rising interest rates, these agreements also reduce the benefits to us when interest rates decline. These agreements involve the following risks: - interest rate movements during the term of the agreement may result in a loss to us; - we may be exposed to losses if the hedge is not indexed to the same rate as the debt anticipated to be incurred; and - we may incur a loss if the counterparty to the agreement fails to pay. 3 9 COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. In some cases, our subsidiaries are subject to similar provisions, which may restrict their ability to make distributions to us. Our primary credit facility with Bank of America National Trust and Savings Association and BankBoston, N.A. provides that we may make distributions to our investors during any 12-month period in an aggregate amount that does not exceed the greater of 80% of our funds from operations for such period or such amount as may be necessary to maintain our REIT status. This credit facility prohibits all distributions if certain financial ratios and tests are not satisfied. Our outstanding classes of preferred stock prohibit the payment of dividends on our common stock if we fail to pay the dividends to which the holders of the preferred stock are entitled. If we are unable to pay dividends, we may fail to qualify as a REIT. This would subject us to corporate taxation and reduce our ability to make distributions to you. WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES All of our properties are owned, and all of our operations are conducted, by the AIMCO operating partnership and our other subsidiaries. As a result, we depend on distributions and other payments from the subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments is dependent upon their earnings and may be subject to statutory or contractual limitations. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims would still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to us. REAL ESTATE INVESTMENT RISKS Our ability to make payments to our investors depends on our ability to generate funds from operations in excess of required debt payments and capital expenditure requirements. Funds from operations and the value of our properties may be adversely affected by events or conditions which are beyond our control. Such events or conditions could include: - the general economic climate; - competition from other apartment communities and alternative housing; - local conditions, such as an increase in unemployment or an oversupply of apartments, that might adversely affect apartment occupancy or rental rates; - increases in operating costs (including real estate taxes) due to inflation and other factors, which may not necessarily be offset by increased rents; - changes in governmental regulations and the related costs of compliance; - changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; - changes in interest rate levels and the availability of financing; and - the relative illiquidity of real estate investments. POSSIBLE ENVIRONMENTAL LIABILITIES Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances released on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against 4 10 contaminated properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose, on persons for the cost of removal or remediation of hazardous or toxic substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under said laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional Federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. For example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the ADA or the FHAA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA and FHAA. RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING As of December 31, 1998, we owned or controlled 12 properties, held an equity interest in 462 properties and managed for third parties and affiliates 578 properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development ("HUD") or state housing finance agencies, typically provide mortgage insurance, favorable financing terms or rental assistance payments to the property owners. As a condition to the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts. If permitted rents on a property are insufficient to cover costs, a sale of the property may become necessary, which could result in a loss of management fee revenue. We usually need to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted or HUD-insured property. We can make no assurance that we will always receive such approval. THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES We manage some properties owned by third parties. In 1988, we received $13.3 million of revenue from the management of such properties. We may suffer a loss of revenue if we lose our right to manage these properties or if the rental revenues upon which our management fees are based declines. In general, management contracts may be terminated or otherwise lost as a result of: - a disposition of the property by the owner in the ordinary course or as a result of financial distress of the property owner; - the property owner's determination that our management of the property is unsatisfactory; - willful misconduct, gross negligence or other conduct that constitutes grounds for termination; or - with respect to certain "affordable" properties, termination of such contracts by HUD or state housing finance agencies, generally at their discretion. DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS Although we have entered into employment agreements with our Chairman and Chief Executive Officer, Terry Considine, our President, Peter K. Kompaniez and our Executive Vice President, Steven D. Ira, the loss of any of their services could have an adverse effect on our operations. 5 11 POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES We have been, and continue to be, involved in various transactions with a number of our affiliates, including executive officers, directors and entities in which they own interests. For example, in order to satisfy certain REIT requirements, Messrs. Considine and Kompaniez directly or indirectly control the management companies which manage properties for third parties and affiliates. Although we own a 95% non-voting interest in these management companies, we have no control over them or their operations. As a result, the management companies could implement business decisions or policies that are not in our best interests. We have adopted certain policies designed to minimize or eliminate the conflicts of interest inherent in these transactions, including a requirement that a majority of our disinterested directors approve certain transactions with affiliates. However, there can be no assurance that these policies will be successful in eliminating the influence of such conflicts. Furthermore, such policies are subject to change without the approval of our stockholders. TAX RISKS Adverse Consequences of Failure to Qualify as a REIT. Although we believe that we operate in a manner that enables us to meet the requirements for qualification as a REIT for Federal income tax purposes, we do not plan to request a ruling from the IRS that we qualify as a REIT. We have, however, received an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom LLP to the effect that, beginning with our initial taxable year ended December 31, 1994, we were organized in conformity with the requirements for qualification as a REIT under the Internal Revenue Code and that our actual method of operation has enabled, and our proposed method of operation will enable, us to meet the requirements for qualification and taxation as a REIT. The opinion is expressed as of its date and Skadden, Arps, Slate, Meagher & Flom LLP has no obligation to advise us of any change in applicable law or of any change in matters stated, represented or assumed after the date of such opinion. You should be aware that opinions of counsel are not binding on the IRS or any court. Our opinion of counsel is based upon certain representations and covenants made by us regarding our properties and the past, present and future conduct of our business operations. Furthermore, our opinion of counsel is conditioned on, and our continued qualification as a REIT will depend on, our ability to meet, through actual annual operating results, the various REIT qualification tests, the results of which will not be reviewed by Skadden Arps, Slate, Meagher & Flom LLP. No assurance can be given that the actual results of our operations for any one taxable year will satisfy such requirements. Such requirements are discussed in more detail under the heading "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." If we fail to qualify as a REIT, we would not be allowed a deduction for dividends paid to our shareholders in computing our taxable income and we would be subject to Federal income tax at regular corporate rates. We also could be subject to the Federal alternative minimum tax. Unless we are entitled to relief under the tax law, we could not elect to be taxed as a REIT for four years following the year during which we were disqualified. Therefore, if we lose our REIT status, the funds available for payment to our investors would be reduced substantially for each of the years involved. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General -- Failure to Qualify." As a result of the additional tax liability, we might need to borrow funds or liquidate certain investments on terms that may be disadvantageous to us in order to pay the applicable tax, and we would not be compelled to make distributions under the Internal Revenue Code. Also, if we fail to qualify as a REIT, (i) we would be obligated to repurchase 750,000 shares of our preferred stock at a price of $105 per share, plus accrued and unpaid dividends to the date of repurchase, and (ii) we would be in default under our primary credit facilities and certain other loan documents. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify." If we acquire a corporation that is not a REIT, we will qualify as a REIT only if we distribute all of the acquired corporation's "earnings and profits" by the end of the year in which the acquisition occurs. AIMCO has retained, and may in the future retain, independent certified public accountants to review the determination of certain acquired corporation's earnings and profits for purpose of this requirement. The determination of earnings and profits, however, is difficult and requires the resolution of technical tax issues. In addition, the 6 12 IRS can consider all taxable years of the acquired corporation as open for review for purposes of determining the amount of its earnings and profits. Our failure to distribute an amount equal to the acquired corporation's earnings and profits on or before the end of the year in which the acquisition occurs would result in our failure as a REIT. Effect of Distribution Requirements. As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we have available for other business purposes, including amounts to fund our growth. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution Requirements." Possible Legislative or Other Actions Affecting REITs. The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the tax law (which changes may have retroactive application) could adversely affect our investors. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to us or our investors will be changed. Other Tax Liabilities. Even if we qualify as a REIT, we and our subsidiaries may be subject to certain Federal, state and local taxes on our income and property that could reduce operating cash flow. POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES Our Charter limits ownership of our common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine). The Charter also prohibits anyone from buying shares if the purchase would result in us losing our REIT status. This could happen if a share transaction results in fewer than 100 persons owning all of our shares or results in five or fewer persons, applying certain broad attribution rules of the Internal Revenue Code, owning 50% or more of the value of all of our shares. If you or anyone else acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Internal Revenue Code for REITs: - the transfer will be considered null and void; - we will not reflect the transaction on our books; - we may institute legal action to enjoin the transaction; - we may demand repayment of any dividends received by the affected person on those shares; - we may redeem the shares; - the affected person will not have any voting rights for those shares; and - the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by us. We may purchase the shares held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares, the affected person will receive the lesser of the price he paid for the shares or the then current market price. An individual who acquires shares that violate the above rules bears the risk that: - he may lose control over the power to dispose of the shares; - he may not recognize profit from the sale of such shares if the market price of the shares increases; - he may be required to recognize a loss from the sale of such shares if the market price decreases; and - he may be required to repay AIMCO any distributions received from AIMCO as a result of his ownership of such shares. 7 13 OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE CONTROL OF THE COMPANY Ownership Limit. The 8.7% ownership limit discussed above may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Preferred Stock. Our Charter authorizes our Board of Directors to issue up to 510,750,000 shares of capital stock. As of February 28, 1999, 484,021,750 shares were classified as Class A Common Stock, 262,500 shares were classified as Class B Common Stock and 32,160,000 were classified as preferred stock. Under the Charter, our Board of Directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as the Board of Directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests. Maryland Business Statutes. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our shareholders' best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our Board of Directors' prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and only with the approval of shareholders representing 80% of all votes entitled to be cast and 66% of the votes entitled to be cast, excluding the interested shareholder. Maryland law also provides that a person who acquires shares of our stock that represent 20% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of our computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. We have determined that we will be required to modify or replace significant portions of our software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. We believe that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on our operations. Our plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing, and implementation. To date, we have fully completed our assessment of all information systems that could be significantly affected by the Year 2000, and have begun the remediation, testing and implementation phases on both hardware and software systems. We are continuing our assessments with respect to embedded systems. The total cost of our Year 2000 project is estimated at $3.4 million and is being funded through operating cash flows. To date, we have spent approximately $2.7 million ($0.5 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.4 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.3 million relates to repair of hardware and software and will be expensed as incurred. We have not yet completed all necessary phases of the Year 2000 program. If we do not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios include elevators, security and heating-ventilation-air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from the Year 2000 Issue could also materially adversely affect us. We could be subject to litigation for 8 14 computer systems failure, for example, equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS We refer to interests in the AIMCO Operating Partnership as "OP Units." The Partnership Common Units are referred to as "Common OP Units" and the Partnership Preferred Units are referred to as "Preferred OP Units." The agreement of limited partnership of the AIMCO Operating Partnership is referred to as the "AIMCO Operating Partnership Agreement." Restrictions on Transferability of OP Units. There is no public market for our OP Units. In addition, our partnership agreement restricts the transferability of OP Units. Until the expiration of a one year holding period, subject to certain exceptions, investors may not transfer OP Units without the consent of the general partner of the AIMCO Operating Partnership. Thereafter investors may transfer such OP Units subject to the satisfaction of certain conditions, including the general partner's right of first refusal. See "Description of OP Units -- Transfers and Withdrawals." We have no plans to list our OP Units on a securities exchange. It is unlikely that any person will make a market in our OP Units, or that an active market for our OP Units will develop. If a market for our OP Units develops and our OP Units are considered "readily tradable" on a "secondary market (or the substantial equivalent thereof)," the AIMCO Operating Partnership would be classified as a publicly traded partnership for federal income tax purposes. See "-- Tax Treatment is Dependent on Partnership Status; Publicly Traded Partnership Risks." Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership Performance. Although we make quarterly distributions on our OP Units, there can be no assurance regarding the amounts of available cash that the AIMCO Operating Partnership will generate or the portion that the general partner will choose to distribute. The actual amounts of available cash will depend upon numerous factors, including profitability of operations, required principal and interest payments on our debt, the cost of acquisitions (including related debt service payments), our issuance of debt and equity securities, fluctuations in working capital, capital expenditures, adjustments in reserves, prevailing economic conditions and financial, business and other factors, some of which may be beyond the our control. Cash distributions are dependent primarily on cash flow, including from reserves, and not on profitability, which is affected by non-cash items. Therefore, cash distributions may be made during periods when the we record losses and may not be made during periods when we record profits. We make quarterly distributions to holders of Common OP Units (on a per unit basis) that generally are equal to the dividends paid on the Class A Common Stock (on a per share basis). However, such distributions will not necessarily continue to be equal to such dividends. Our partnership agreement gives our general partner discretion in establishing reserves for the proper conduct of the partnership's business that will affect the amount of available cash. We are required to make reserves for the future payment of principal and interest under our credit facilities and other indebtedness. In addition, our credit facilities limit our ability to distribute cash to holders of our OP Units. As a result of these and other factors, there can be no assurance regarding our actual levels of cash distributions on our OP Units, and our ability to distribute cash may be limited during the existence of any events of default under any of our debt instruments. The AIMCO GP Manages and Operates the AIMCO Operating Partnership; OP Unitholders Have Limited Voting Rights. The AIMCO GP manages and operates the AIMCO Operating Partnership. Unlike the holders of common stock in a corporation, OP Unitholders have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. OP Unitholders have no right to elect the AIMCO GP on an annual or other continuing basis, and the AIMCO GP may not be removed by OP Unitholders. As a result, OP Unitholders have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of the AIMCO Operating Partnership. We May Issue Additional Partnership Interests, Diluting OP Unitholders' Interests. We may issue an unlimited number of additional OP Units or other limited partner interests of the AIMCO Operating Partnership for such consideration and on such terms as may be established by the AIMCO GP in its sole 9 15 discretion, in most cases, without the approval of OP Unitholders. The effect of any such issuance may be to dilute the interests of OP Unitholders in distributions by the AIMCO Operating Partnership. OP Unitholders May Not Have Limited Liability in Certain Circumstances. The limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the OP Unitholders as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then an OP Unitholder could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the AIMCO GP. Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest have arisen and could arise in the future as a result of the relationships between the AIMCO GP and its affiliates, on the one hand, and the AIMCO Operating Partnership or any partner thereof, on the other. The directors and officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary duties to manage the AIMCO Operating Partnership in a manner beneficial to the AIMCO Operating Partnership and its partners. The duties of the AIMCO GP, as general partner, to the AIMCO Operating Partnership and its partners, therefore, may come into conflict with the duties of the directors and officers of the AIMCO GP to its sole stockholder, AIMCO. Such conflicts of interest might arise in the following situations, among others: - Decisions of the AIMCO GP with respect to the amount and timing of cash expenditures, borrowings, issuances of additional interests and reserves in any quarter will affect whether or the extent to which there is available cash to make distributions in a given quarter. - Under the terms of its partnership agreement, the AIMCO Operating Partnership will reimburse the AIMCO GP and its affiliates for costs incurred in managing and operating the AIMCO Operating Partnership, including compensation of officers and employees. - Whenever possible, the AIMCO GP seeks to limit the AIMCO Operating Partnership's liability under contractual arrangements to all or particular assets of the AIMCO Operating Partnership, with the other party thereto to have no recourse against the AIMCO GP or its assets. - Any agreements between the AIMCO Operating Partnership and the AIMCO GP and its affiliates will not grant to the OP Unitholders, separate and apart from the AIMCO Operating Partnership, the right to enforce the obligations of the AIMCO GP and such affiliates in favor of the AIMCO Operating Partnership. Therefore, the AIMCO GP, in its capacity as the general partner of the AIMCO Operating Partnership, will be primarily responsible for enforcing such obligations. - Under the terms of the AIMCO Operating Partnership Agreement, the AIMCO GP is not restricted from causing the AIMCO Operating Partnership to pay the AIMCO GP or its affiliates for any services rendered on terms that are fair and reasonable to the AIMCO Operating Partnership or entering into additional contractual arrangements with any of such entities on behalf of the AIMCO Operating Partnership. Neither the AIMCO Operating Partnership Agreement nor any of the other agreements, contracts and arrangements between the AIMCO Operating Partnership, on the one hand, and the AIMCO GP and its affiliates, on the other, are or will be the result of arms-length negotiations. Unless otherwise provided for in the relevant partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The AIMCO Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into, on behalf of the AIMCO Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the AIMCO Operating Partnership and the AIMCO GP, on such terms 10 16 as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The latitude given in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving conflicts of interest may significantly limit the ability of an OP Unitholder to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP believes, however, that such latitude is necessary and appropriate to enable it to serve as the general partner of the AIMCO Operating Partnership without undue risk of liability. The AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the AIMCO GP or such director or officer acted in good faith. In addition, the AIMCO Operating Partnership is required to indemnify the AIMCO GP, its affiliates and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law, against any and all losses, claims, damages, liabilities, joint or several, expenses, judgments, fines and other actions incurred by the AIMCO GP or such other persons, provided that the AIMCO Operating Partnership will not indemnify for (i) willful misconduct or a knowing violation of the law or (ii) for any transaction for which such person received an improper personal benefit in violation or breach of any provision of the AIMCO Operating Partnership Agreement. The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and the AIMCO GP has not obtained an opinion of counsel covering the provisions set forth in the AIMCO Operating Partnership Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP that would be in effect under common law were it not for the AIMCO Operating Partnership Agreement. Certain Tax Risks Associated with an Investment in the OP Units. For a general discussion of certain Federal income tax consequences resulting from the acquisition, holding, exchanging, and otherwise disposing of OP Units, see "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." Tax Treatment is Dependent on Partnership Status; Publicly Traded Partnership Risks. The availability to an OP Unitholder of the federal income tax benefits of an investment in the AIMCO Operating Partnership depends on the classification of the AIMCO Operating Partnership as a partnership for federal income tax purposes. In the opinion of our legal counsel, which opinion is based upon certain assumptions and representations by the AIMCO Operating Partnership and on opinions of local counsel, with respect to matters of local law, the AIMCO Operating Partnership will be classified as a partnership for federal income tax purposes. The opinion is expressed as of its date and our counsel has no obligation to advise OP Unitholders of any subsequent change in the matters stated, represented or assumed or any subsequent change in the applicable law. No advance ruling has been or will be sought from the IRS as to the classification of the AIMCO Operating Partnership as a partnership. An opinion of counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge the status of the AIMCO Operating Partnership as a partnership. If a market for the OP Units develops and the OP Units are considered "readily tradable" on a "secondary market (or the substantial equivalent thereof)," the AIMCO Operating Partnership would be classified as a publicly traded partnership for Federal income tax purposes. We believe and intend to take the position that the AIMCO Operating Partnership should not be classified as a publicly traded partnership because (i) our OP Units are not traded on an established securities market and (ii) our OP Units should not be considered readily tradable on a secondary market or the substantial equivalent thereof. The determination of whether interests in a partnership are readily tradable on a secondary market or the substantial equivalent thereof, however, depends on various facts and circumstances (including facts that are not within the control of the AIMCO Operating Partnership). Although the Treasury regulations promulgated by the U.S. Treasury Department under the Internal Revenue Code (the "Treasury Regulations") and an IRS pronouncement provide limited safe harbors, which, if satisfied, will prevent a partnership's interests from being treated as readily tradable on a secondary market or the substantial equivalent thereof, the AIMCO Operating Partnership may not have satisfied these safe harbors in its previous tax years. In addition, because the AIMCO Operating Partnership's ability to satisfy a safe harbor may involve facts that are not within its 11 17 control, it is not possible to predict whether the AIMCO Operating Partnership will satisfy a safe harbor in future tax years. Such safe harbors are not intended to be substantive rules for the determination of whether partnership interests are readily tradable on a secondary market or the substantial equivalent thereof, and consequently, the failure to meet these safe harbors will not necessarily cause the AIMCO Operating Partnership to be treated as a publicly traded partnership. No assurance can be given, however, that the IRS will not assert that partnerships such as the AIMCO Operating Partnership constitute publicly traded partnerships, or that facts and circumstances will not develop which could result in the AIMCO Operating Partnership being treated as a publicly traded partnership. If the AIMCO Operating Partnership were classified as a publicly traded partnership, it would nevertheless not be taxable as a corporation as long as 90% or more of its gross income consists of "qualifying income." In general, qualifying income includes interest, dividends, real property rents (as defined by section 856 of the Internal Revenue Code) and gain from the sale or disposition of real property. We believe that more than 90% of the gross income of the AIMCO Operating Partnership consists of qualifying income and we expect that more than 90% of its gross income in future tax years will consist of qualifying income. In such event, even if the AIMCO Operating Partnership were characterized as a publicly traded partnership, it would not be taxable as a corporation. If the AIMCO Operating Partnership were characterized as a publicly traded partnership, however, each OP Unitholder would be subject to special rules under section 469 of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on Deductibility of Losses; "Passive Activity Loss" Limitation." No assurance can be given that the actual results of the AIMCO Operating Partnership's operations for any one taxable year will enable it to satisfy the qualifying income exception. If the AIMCO Operating Partnership were classified as an association or publicly traded partnership taxable as a corporation (because it did not meet the qualifying income exception discussed above), it would be subject to tax at the entity level as a regular corporation and OP Unitholders would be subject to tax in the same manner as stockholders of a corporation. Thus, the AIMCO Operating Partnership would be subject to federal tax (and possibly state and local taxes) on its net income, determined without reduction for any distributions made to the OP Unitholders, at regular federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to the OP Unitholders, which reduction could also materially and adversely impact the liquidity and value of the OP Units. In addition, the AIMCO Operating Partnership's items of income, gain, loss, deduction and credit would not be passed through to the OP Unitholders and the OP Unitholders would not be subject to tax on the income earned by the AIMCO Operating Partnership. Distributions received by an OP Unitholder from the AIMCO Operating Partnership, however, would be treated as dividend income for federal income tax purposes, subject to tax as ordinary income to the extent of current and accumulated earnings and profits of the AIMCO Operating Partnership, and the excess, if any, as a nontaxable return of capital to the extent of the OP Unitholder's adjusted tax basis in his AIMCO Operating Partnership interest (without taking into account partnership liabilities), and thereafter as gain from the sale of a capital asset. Classification of the AIMCO Operating Partnership as an association or publicly traded partnership taxable as a corporation would also result in the termination of AIMCO's status as a REIT for federal income tax purposes which would have a material adverse impact on AIMCO. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Partnership Status." No assurances can be given that the IRS would not challenge the status of the AIMCO Operating Partnership as a "partnership" which is not "publicly traded" for federal income tax purposes or that a court would not reach a result contrary to such positions. Accordingly, each prospective investor is urged to consult his tax advisor regarding the classification and treatment of the AIMCO Operating Partnership as a "partnership" for federal income tax purposes. Consequences of Exchanging Property for OP Units. In general, no gain or loss will be recognized for federal income tax purposes by a person contributing property to the AIMCO Operating Partnership (the "Contributing Partner") in exchange for OP Units, and the Contributing Partner will take a tax basis in the OP Unit received equal to his adjusted tax basis in the contributed property. Notwithstanding this general rule of nonrecognition, a Contributing Partner may recognize a gain where the property transferred is subject to liabilities, or the AIMCO Operating Partnership assumes liabilities in connection with the transfer of property, 12 18 and the amount of such liabilities exceeds the amount of the AIMCO Operating Partnership liabilities allocated to such person as determined immediately after the transfer. Such excess is treated as a deemed distribution of cash to the Contributing Partner from the AIMCO Operating Partnership which, in turn, is treated as a nontaxable return of capital to the extent of the Contributing Partner's adjusted tax basis in his OP Unit and thereafter as gain from the sale of such partnership interest. If the Contributing Partner transfers property to the AIMCO Operating Partnership and the adjusted tax basis of the property differs from its fair market value, then AIMCO Operating Partnership tax items must be allocated, for Federal income tax purposes, in a manner such that the Contributing Partner is charged with the unrealized gain, or benefits from the unrealized loss, associated with the property at the time of the contribution. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership." There are a variety of transactions that the AIMCO Operating Partnership may in its sole discretion undertake following such contribution with respect to the contributed property or the debt securing such property which could cause the Contributing Partner to recognize taxable gain, even though little or no cash is distributable to him as a result thereof. Such transactions include but are not limited to (i) the sale of a particular property, which could result in an allocation of gain only to those OP Unitholders who received OP Units for such property (even if cash attributable to sale proceeds were distributed proportionately to all OP Unitholders); and (ii) a reduction in the nonrecourse debt allocable to property (either because such debt becomes a recourse liability or is paid off with cash flow, new equity, or proceeds of debt secured by other property of the AIMCO Operating Partnership), which would result in a deemed distribution of money to the OP Unitholders who received OP Units for such property as well as to the other OP Unitholders. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Cash Distributions." The AIMCO Operating Partnership Agreement grants the AIMCO GP broad authority to undertake such transactions and does not grant the OP Unitholders affected by these actions any rights to prevent the AIMCO GP from taking such actions. Even if the AIMCO GP does not intend to sell or otherwise dispose of contributed property or to reduce the debt, if any, securing such property within any specified time period after the Contributing Partner transfers such property to the AIMCO Operating Partnership, it is possible that future economic, market, legal, tax or other considerations may cause the AIMCO Operating Partnership to dispose of the contributed property or to reduce its debt. In this regard, the AIMCO Operating Partnership Agreement provides that the AIMCO GP, while acting in its capacity as general partner of the AIMCO Operating Partnership, may, but is not required to, take into account the tax consequences to the OP Unitholders of its actions in such capacity. The AIMCO GP intends to make decisions in its capacity as general partner of the AIMCO Operating Partnership so as to maximize the profitability of the AIMCO Operating Partnership as a whole, independent of the tax effects on individual OP Unitholders. Tax Liability Exceeding Cash Distribution. An OP Unitholder will be required to pay federal income tax and, in certain cases, state and local income taxes, on his allocable share of the AIMCO Operating Partnership's income, even if he receives no cash distributions from the AIMCO Operating Partnership. No assurance can be given that an OP Unitholder will receive cash distributions equal to his allocable share of taxable income from the AIMCO Operating Partnership or even the tax liability to him resulting from that income. Further, upon the sale of his OP Units, an OP Unitholder may incur a tax liability in excess of the amount of cash received. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Taxation of OP Unitholders of AIMCO Operating Partnership," and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Sale, Redemption, or Exchange of OP Units." Deductibility of Losses. An OP Unitholder's ability to use his allocable share of losses, if any, from the AIMCO Operating Partnership at the end of the taxable year in which the loss is incurred may be limited by certain provisions of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Limitations on Deductibility of Losses." 13 19 Potential Audits. The AIMCO Operating Partnership's tax return may be audited, and any such audit could result in an audit of an OP Unitholder's tax return as well as increased liabilities for taxes because of adjustments resulting from the audit. No assurance can be given that the AIMCO Operating Partnership will not be audited by the IRS or various state authorities or that tax adjustments will not be made. Any adjustments in the AIMCO Operating Partnership's tax return will lead to adjustments in an OP Unitholder's tax return and may lead to audits of an OP Unitholder's tax return and adjustments of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would bear the cost of any expenses incurred in connection with an examination of such OP Unitholder's tax return. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Information Returns and Audit Procedures." State, Local and Other Tax Considerations. In addition to federal income taxes, the AIMCO Operating Partnership and its OP Unitholders may be subject to state, local and foreign taxation in various jurisdictions in which the AIMCO Operating Partnership does business, owns property or resides. See "Other Tax Consequences -- State, Local and Foreign Taxes." Each prospective investor is urged to consult its tax advisor in this regard. Tax Gain or Loss on Disposition of OP Units. An OP Unitholder who sells OP Units will recognize gain or loss equal to the difference between the amount realized (including his share of AIMCO Operating Partnership nonrecourse liabilities) and his adjusted tax basis in such OP Units. Thus, prior AIMCO Operating Partnership distributions in excess of cumulative net taxable income in respect of an OP Unit which decreased an OP Unitholder's tax basis in such OP Unit will, in effect, become taxable income if the OP Unit is sold at a price greater than the OP Unitholder's tax basis in such OP Units, even if the price is less than his original cost. A portion of the amount realized (whether or not representing gain) may be ordinary income. 14 20 SECURITIES COVERED BY THIS PROSPECTUS The securities covered by this Prospectus (the "Securities") may be offered and issued from time to time by AIMCO or the AIMCO Operating Partnership in connection with acquisitions of businesses, properties, securities or other assets. In addition, AIMCO may issue (i) shares of its Class A Common Stock, par value $0.01 per share ("Class A Common Stock") covered hereby upon conversion of shares its Preferred Stock, par value $0.01 per share ("Preferred Stock"), (ii) shares of its Preferred Stock covered hereby and shares of its Class A Common Stock covered hereby, in each case in exchange for Partnership Preferred Units of the AIMCO Operating Partnership ("Preferred OP Units") tendered for redemption pursuant to the AIMCO Operating Partnership Agreement and (iii) shares of its Class A Common Stock covered hereby in exchange for Partnership Common Units of the AIMCO Operating Partnership ("Common OP Units" and together with the Preferred OP Units, the "OP Units") tendered for redemption pursuant to the AIMCO Operating Partnership Agreement. It is expected that the terms of acquisitions involving the issuance of the Securities will be determined by direct negotiations with owners or controlling persons of the business, properties, securities or other assets to be acquired or through exchange offers. It is expected that any shares of Class A Common Stock or Common OP Units issued will be valued at prices based on or related to market prices for the Class A Common Stock at or near the time the terms of such acquisition are established or at or near the time such Securities are delivered, or based on average market prices for periods ending at or near such times. No underwriting discounts or commissions will be paid, although brokers' or finders' fees may be paid from time to time with respect to specific acquisitions, and AIMCO or the AIMCO Operating Partnership may issue the Securities in full or partial payment of such fees. Any person receiving such fees may be deemed to be an "underwriter," within the meaning of the Securities Act. AIMCO and the AIMCO Operating Partnership will not use this Prospectus to issue securities in connection with any "roll-up transaction" as such term is defined in Item 901 of Regulation S-K. Prior to offering any Securities in a transaction that would be excluded from the definition of a "roll-up transaction" pursuant to the provisions of subparagraph (iv), (vii) or (viii) of paragraph (c)(2) of Item 901 of Regulation S-K, AIMCO and the AIMCO Operating Partnership will describe such transaction in a post-effective amendment to the Registration Statement of which this Prospectus forms a part. This Prospectus has also been prepared for use by the persons who may receive from AIMCO or the AIMCO Operating Partnership Securities covered by the Registration Statement in acquisitions and who may be entitled to offer such Securities under circumstances requiring the use of a prospectus (such persons being referred to under this caption as "Securityholders"); provided, however, that no Securityholder will be authorized to use this Prospectus for any offer of such Security without first obtaining the consent of AIMCO and the AIMCO Operating Partnership. AIMCO and the AIMCO Operating Partnership may consent to the use of this Prospectus for a limited period of time by the Securityholders and subject to limitations and conditions which may be varied by agreement between AIMCO and the AIMCO Operating Partnership and the Securityholders. Resales of such Securities may be made on the NYSE or such other exchange on which the Securities may be listed, in the over-the-counter market, in private transactions or pursuant to underwriting agreements. Agreements with Securityholders permitting use of this Prospectus may provide that any such offering be effected in an orderly manner through securities dealers, acting as broker or dealer, selected by AIMCO and the AIMCO Operating Partnership; that Securityholders enter into custody agreements with one or more banks with respect to such shares; and that sales be made only by one or more of the methods described in this Prospectus, as appropriately supplemented or amended when required. The Securityholders may be deemed to be underwriters within the meaning of the Securities Act. When resales are to be made through a broker or dealer selected by AIMCO and the AIMCO Operating Partnership, it is anticipated that a member firm of the NYSE may be engaged to act as the Securityholders' agent in the sale of shares by such Securityholders. The member firm will be entitled to commissions (including negotiated commissions to the extent permissible). Sales of shares by the member firm may be made on the NYSE or other exchange from time to time at prices related to prices then prevailing. Any such 15 21 sales may be by block trade. Any such member firm may be deemed to be an underwriter within the meaning of the Securities Act and any commissions earned by such member firm may be deemed to be underwriting discounts and commissions under such act. Upon AIMCO and the AIMCO Operating Partnership being notified by a Securityholder that any block trade has taken place, a supplementary prospectus, if required, will be filed pursuant to Rule 424 under the Securities Act, disclosing the name of the member firm, the number of shares involved, the price at which such shares were sold by such Securityholder, and the commissions to be paid by such Securityholder to such member firm. This Prospectus may be supplemented or amended from time to time to reflect its use for resales by persons who received Securities for whom AIMCO and the AIMCO Operating Partnership have consented to the use of this Prospectus in connection with resales of such Securities. In addition to the Securities offered hereby, AIMCO and the AIMCO Operating Partnership may from time to time issue additional Securities through public offerings or private placements. AIMCO and the AIMCO Operating Partnership may make such future issuances of Securities in connection with its acquisition of other businesses, properties, securities or other assets in business combination transactions or for other purposes. 16 22 RATIO OF EARNINGS TO FIXED CHARGES
THE COMPANY COMPANY COMPANY ------------------------------------------------ PREDECESSORS(1) PRO FORMA(6) FOR THE ------------------- -------------------- NINE FOR THE FOR THE FOR THE MONTHS FOR THE YEARS PERIOD PERIOD FOR THE NINE FOR THE ENDED ENDED JAN. 10, JAN. 1, YEAR MONTHS YEAR SEPT. 30, DECEMBER 31, 1994 TO 1994 TO ENDED ENDED ENDED ------------- --------------------- DEC. 31, JULY 28, DEC. 31, SEPT. 30, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(3) 1993 1998 1997 ----- ----- ----- ----- ----- -------- -------- -------- --------- -------- Ratio of earning to fixed charges(2)...................... 1.8:1 1.6:1 1.5:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1 1.5:1 2.1:1 Ratio of earnings to combined fixed charges and preferred stock dividends(4)(5)........... 1.4:1 1.5:1 1.5:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1 1.2:1 1.5:1
- --------------- (1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of Class A Common Stock. On such date, AIMCO and Property Asset Management, L.L.C., and its affiliated companies and PDI Realty Enterprises, Inc. (collectively, the "Company Predecessors") engaged in a business combination and consummated a series of related transactions which enabled the Company to continue and to expand the property management and related businesses of the Company Predecessors. (2) The ratio of earnings to fixed charges for the Company was computed by dividing earnings by fixed charges. For this purpose, "earnings" consists of income before minority interests (which includes equity in earnings of unconsolidated subsidiaries and partnerships only to the extent of dividends and distributions received) plus fixed charges (other than any interest which has been capitalized); and "fixed charges" consists of interest expense (including amortization of loan costs) and interest which has been capitalized. The ratio of earnings to fixed charges for the Company Predecessors was computed by dividing earnings by fixed charges. For this purpose, "earnings" consists of income (loss) before extraordinary items and income taxes plus fixed charges and "fixed charges" consists of interest expense (including amortization of loan costs). (3) The earnings of the Company Predecessors for the period from January 1, 1994 to July 28, 1994 were inadequate to cover fixed charges by $1,463,000. (4) The ratio of earnings to combined fixed charges and preferred stock dividends for the Company was computed by dividing earnings by the total of fixed charges and preferred stock dividends. For this purpose, "earnings" consists of income before minority interests (which includes equity in earnings of unconsolidated subsidiaries and partnerships only to the extent of dividends and distributions received) plus fixed charges (other than any interest which has been capitalized); "fixed charges" consists of interest expense (including amortization of loan costs) and interest which has been capitalized; and "preferred stock dividends" consists of the amount of pre-tax earnings that would be required to cover preferred stock dividend requirements. (5) The Company Predecessors did not have any shares of preferred stock outstanding during the period from January 1, 1993 through July 28, 1994. (6) Gives pro forma effect, as of the beginning of the period indicated, to AIMCO's May 8, 1998 merger with Ambassador Apartments, Inc., AIMCO's October 1, 1998 merger with Insignia Financial Group, Inc. and certain other transactions completed by AIMCO subsequent to December 31, 1997. 17 23 SELECTED HISTORICAL FINANCIAL DATA The following table sets forth selected historical financial and operating information for the Company. The Selected Historical Financial Data for the nine months ended September 30, 1998 and 1997 is based on unaudited financial statements of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the nine months ended September 30, 1998, incorporated by reference herein. Results for the quarter ended September 30, 1998 are not necessarily indicative of the results to be expected for a full year. The selected historical financial information for the years ended December 31, 1997, 1996 and 1995 is based on the audited financial statements of AIMCO incorporated by reference herein. The selected historical financial information for the period January 10, 1994 (the date of AIMCO's inception) through December 31, 1994 for AIMCO and for the period from January 1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the Company's Predecessors is based on the audited financial statements of AIMCO and the Company's Predecessors, respectively. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in AIMCO's Annual Report on Form 10-K/A for the year ended December 31, 1997 and in AIMCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and the historical financial statements of AIMCO and notes thereto incorporated by reference in this Prospectus.
THE COMPANY'S THE COMPANY PREDECESSORS(A) -------------------------------------------------------------------------- ------------------------ FOR THE FOR THE PERIOD PERIOD FOR THE FOR THE JAN. 10, JAN. 1, FOR THE NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(B) 1993 ---------- ---------- ---------- -------- -------- ------------- ------------- -------- (RESTATED)(C) (RESTATED)(C) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other property revenues................ $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056 Property operating expenses................ (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200) Owned property management expenses................ (7,746) (4,344) (6,620) (2,746) (2,276) (711) -- -- Depreciation.............. (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income from Rental Property Operations..... 96,562 48,154 72,477 39,814 27,483 9,126 2,391 3,154 ---------- ---------- ---------- -------- -------- -------- ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income.................. 13,968 9,173 13,937 8,367 8,132 3,217 6,533 8,069 Management and other expenses................ (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414) Corporate overhead allocation.............. (196) (441) (588) (590) (581) -- -- -- Amortization of Goodwill................ -- -- (948) (500) (428) -- -- -- Owner and seller bonuses................. -- -- -- -- -- -- (204) (468) Depreciation and amortization............ (3) (236) (453) (218) (168) (150) (146) (204) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income from service business................ 5,668 3,467 2,038 1,707 2,002 1,020 360 983 Minority interests in service company business................ -- 48 (10) 10 (29) (14) -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Company's shares of income from service company business................ 5,668 3,515 2,028 1,717 1,973 1,006 360 983 ---------- ---------- ---------- -------- -------- -------- ------- -------- General and administrative expenses................ (7,444) (1,408) (5,396) (1,512) (1,804) (977) -- -- Interest income........... 18,244 4,458 8,676 523 658 123 -- -- Interest expense.......... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510) Minority interest in other partnerships............ (1,052) (777) 1,008 (111) -- -- -- -- Equity in earnings of other partnerships(d)... (5,078) (463) (1,798) -- -- -- -- -- Equity in earnings of Unconsolidated Subsidiaries(e)......... 8,413 456 4,636 -- -- -- -- -- Amortization of Goodwill................ (5,071) (711) -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Income (loss) before gain on disposition of property, extraordinary item, income taxes and minority interest in AIMCO Operating Partnership............. 53,486 19,865 30,246 15,629 14,988 7,702 (1,463) 627 ---------- ---------- ---------- -------- -------- -------- ------- -------- Gain on disposition of property................ 2,783 (169) 2,720 44 -- -- -- -- Extraordinary (loss) -- forgiveness of debt..... -- (269) (269) -- -- -- -- -- Provisions for income taxes................... -- -- -- -- -- -- (36) (336) ---------- ---------- ---------- -------- -------- -------- ------- -------- Income (loss) before minority interest in AIMCO Operating Partnership............. 56,269 19,427 32,697 15,673 14,988 7,702 (1,499) 291 Minority interest in AIMCO Operating Partnership... (4,425) (2,612) (4,064) (2,689) (1,613) (599) -- -- ---------- ---------- ---------- -------- -------- -------- ------- -------- Net income (loss)......... $ 51,844 $ 16,815 $ 28,633 $ 12,984 $ 13,375 $ 7,103 $(1,499) $ 291 ========== ========== ========== ======== ======== ======== ======= ========
18 24
THE COMPANY'S THE COMPANY PREDECESSORS(A) -------------------------------------------------------------------------- ------------------------ FOR THE FOR THE PERIOD PERIOD FOR THE FOR THE JAN. 10, JAN. 1, FOR THE NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31, 1998 1997 1997 1996 1995 1994 1994(B) 1993 ---------- ---------- ---------- -------- -------- ------------- ------------- -------- (RESTATED)(C) (RESTATED)(C) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA) BALANCE SHEET DATA (END OF PERIOD): Real Estate, before accumulated depreciation............ $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $406,067 $47,500 $ 46,819 Real Estate, net of accumulated depreciation............ 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 32,270 33,701 Total assets.............. 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 39,042 38,914 Total mortgages and notes payable................. 1,275,401 661,715 808,503 522,146 268,692 141,315 40,873 41,893 Mandatory redeemable 1994 Cumulative Convertible Senior Preferred Stock................... -- -- -- -- -- 96,600 -- -- Stockholder's equity...... 1,521,527 627,426 1,045,300 215,749 169,032 140,319 (9,345) (7,556) OTHER DATA: Total owned properties (end of period)......... 241 109 147 94 56 48 4 4 Total owned apartment units (end of period)... 62,955 28,773 40,039 23,764 14,453 12,513 1,711 1,711 Equity Owned Properties... 168,746 87,182 83,431 -- -- -- -- -- Units under management (end of period)......... 154,729 71,038 69,587 19,045 19,594 20,758 29,343 28,422 Basic earnings per common share................... $ 0.80 $ 0.77 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A Diluted earnings per common share............ $ 0.79 $ 0.77 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A Distributions paid per common share............ $ 1.6875 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A Cash flows provided by operating activities.... 50,825 53,435 73,032 38,806 25,911 16,825 2,678 2,203 Cash flows used in investing activities.... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) (924) (16,352) Cash flows provided by (used in) financing activities.............. 141,221 293,984 668,549 60,129 30,145 176,800 (1,032) 14,114 Funds from operations(f)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A Weighted average number of common shares and OP Units outstanding(g).... 53,007 24,347 29,119 14,994 11,461 10,920 N/A N/A
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of Class A Common Stock. On such date, the Company and the Company Predecessors engaged in a business combination and consummated a series of related transactions which enabled the Company to continue and expand the property management and related businesses of the Company Predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of Class A Common Stock were repurchased by AIMCO in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO. (c) In the second quarter of 1996, the Company reorganized its ownership of the service company business. Prior to the 1996 reorganization, the Company reported the service company business on the equity method. After the 1996 reorganization, the service company business was conducted by a limited partnership controlled by the Company and was, therefore, consolidated. The Company has restated the balance sheet as of December 31, 1995 and 1994, and the statements of income and statements of cash flows for the year ended December 31, 1995 and the period from January 10, 1994 through December 31, 1994 to reflect the change. The restatement has no impact on net income, but does increase third party and affiliate management and other income, management and other expenses, amortization of management company goodwill and depreciation of non-real estate assets. In the third quarter of 1998, the Company reorganized its ownership of the service company business so that it is now conducted by the management companies, which are not consolidated. (d) Represents the Company's share of earnings from 83,431 units in which the Company purchased an equity interest from the NHP Real Estate Companies. (e) Represents the Company's equity earnings in the unconsolidated subsidiaries. (f) The Company's management believes that the presentation of funds from operations ("FFO"), when considered with the financial data determined in accordance with generally accepted accounting principles ("GAAP"), provides a useful measure of the Company's performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to the Company, nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization 19 25 (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO calculates FFO based upon the NAREIT definition, adjusted for AIMCO's minority interest in the AIMCO Operating Partnership, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. The Company's management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of the Company's ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO's basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of income before minority interest in the AIMCO Operating Partnership to FFO:
FOR THE FOR THE NINE MONTHS FOR THE PERIOD ENDED YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 TO ------------------ --------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 -------- ------- ------- ------- ------- ------------ (IN THOUSANDS) Income before minority interest in AIMCO Operating Partnership.............. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 Gain on disposition of property.... (2,783) 169 (2,720) (44) -- -- Extraordinary item................. -- 269 269 -- -- -- Real estate depreciation, net of minority interests............... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill........... 7,077 711 948 500 428 76 Equity in earnings of Unconsolidated Subsidiaries: Real estate depreciation......... -- 2,689 3,584 -- -- -- Amortization of management contracts..................... 4,201 430 1,587 -- -- -- Deferred taxes................... 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation......... 17,379 2,781 6,280 -- -- -- Preferred stock dividends.......... (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations.............. $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
(g) Generally, after a one-year holding period, Common OP Units may be tendered for redemption at the option of the holder and, upon tender, may be acquired by AIMCO for shares of Class A Common Stock at an exchange ratio of one share of Class A Common Stock for each Common OP Unit (subject to adjustment). 20 26 PER SHARE AND PER UNIT DATA PER SHARE DATA Set forth below are historical earnings per share of Class A Common Stock, cash dividends per share of Class A Common Stock and book value per share of Class A Common Stock data of AIMCO. The data set forth below should be read in conjunction with the AIMCO audited financial statements and unaudited interim financial statements, including the notes thereto, which are incorporated by reference herein.
AIMCO ---------------------------- NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Basic earnings per weighted average share of Class A Common Stock outstanding......................................... $ 0.80 $ 1.09 Diluted earnings per weighted average share of Class A Common Stock outstanding.................................. $ 0.79 $ 1.08 Cash dividends per weighted average share of Class A Common Stock outstanding......................................... $1.6875 $ 1.85 Book value per share of Class A Common Stock outstanding.... $ 31.71 $22.51
PER UNIT DATA Set forth below are historical earnings per Common OP Unit, cash distributions per Common OP Unit and book value per Common OP Unit. The data set forth below should be read in conjunction with the AIMCO Operating Partnership audited financial statements and unaudited interim financial statements, including the notes thereto, which are incorporated by reference herein.
AIMCO OPERATING PARTNERSHIP ---------------------------- NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ Basic earnings per weighted average Common OP Unit outstanding............................................... $ 0.80 $ 1.09 Diluted earnings per weighted average Common OP Unit outstanding............................................... $ 0.79 $ 1.08 Cash distributions per Common OP Unit outstanding........... $1.6875 $ 1.85 Book value per Common OP Unit outstanding................... $ 30.65 $22.33
21 27 STOCK PRICES, DIVIDENDS AND DISTRIBUTIONS The Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." The following table sets forth, for the periods indicated, the high and low reported sales prices per share of Class A Common Stock, as reported on the NYSE Composite Tape, dividends per share paid on Class A Common Stock for the same periods, and distributions per unit paid on Common OP Units for the same periods. Common OP Units are subject to restrictions on transfer, and there is no trading market for the Common OP Units.
COMMON CLASS A COMMON STOCK OP UNITS ------------------------------ ------------ CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5, 1999)....... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.............................. 37 3/8 30 0.5625 0.5625 Third Quarter............................... 41 30 15/16 0.5625 0.5625 Second Quarter.............................. 38 7/8 36 1/2 0.5625 0.5625 First Quarter............................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.............................. 38 32 0.4625 0.4625 Third Quarter............................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.............................. 29 3/4 26 0.4625 0.4625 First Quarter............................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.............................. 28 3/8 21 1/8 0.4250 0.4250 Third Quarter............................... 22 18 3/8 0.4250 0.4250 Second Quarter.............................. 21 18 3/8 0.4250 0.4250 First Quarter............................... 21 1/8 19 3/8 0.4250 0.4250
Because AIMCO has elected to be taxed for federal income tax purposes as a REIT, it is required to distribute annually to its stockholders at least 95% of its "REIT taxable income," which, as defined by the Code and the Treasury Regulations, is generally equivalent to net taxable ordinary income. AIMCO measures its economic profitability and pays regular dividends to its stockholders based on its operating results during the relevant period. The future payment of dividends by AIMCO will be at the discretion of the AIMCO Board of Directors and will depend on numerous factors, including financial condition, capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors the AIMCO Board of Directors deems relevant. See "Business of the Company -- Operating and Financial Strategies; Dividend Policy." Historically, the AIMCO Operating Partnership has made quarterly distributions to holders of Common OP Units (on a per unit basis) that are equal to the dividends paid on the Class A Common Stock (on a per share basis). Although this is expected to be true in the future, there can be no assurance that distributions on the Common OP Units will always be equal to the dividends on the Class A Common Stock. See "Risk Factors -- Risks Associated With an Investment in OP Units." 22 28 BUSINESS OF THE COMPANY Apartment Investment and Management Company ("AIMCO"), a Maryland corporation formed on January 10, 1994, is a self-administered and self-managed REIT engaged in the ownership, acquisition, development, expansion and management of multi-family apartment properties. As of December 31, 1998, we owned or managed 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. On July 24, 1994, AIMCO completed its initial public offering and engaged in a business combination and consummated a series of related transactions which enabled it to continue and expand the property management and related businesses of Property Asset Management, L.L.C., Limited Liability Company, and its affiliated companies, and PDI Realty Enterprises, Inc. (collectively, the "AIMCO Predecessors"). Based on apartment unit data compiled by the National Multi Housing Council, we believe that, as of December 31, 1998, we were the largest owner and manager of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. We conduct substantially all of our operations through our operating partnership, AIMCO Properties, L.P. Through wholly owned subsidiaries, we act as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, we owned approximately an 83% interest in the AIMCO Operating Partnership. We manage apartment properties for third parties and affiliates through unconsolidated subsidiaries that we refer to as the "management companies." Generally, when we refer to "we," "us" or the "Company" in this prospectus, we are referring to AIMCO, the AIMCO Operating Partnership, the management companies and their respective subsidiaries. The Company's principal executive offices are located at 1873 South Bellaire Street, Suite 1700, Denver, Colorado 80222-4348 and its telephone number is (303) 757-8101. OPERATING AND FINANCIAL STRATEGIES The Company's operating and financing strategies to attempt to meet its objective of providing long-term, predictable funds from operations ("FFO") per share of Class A Common Stock include the following: - Acquisition of Properties at Less Than Replacement Cost. AIMCO attempts to acquire properties at a significant discount to their replacement cost. - Geographic Diversification. AIMCO operates in 49 states, the District of Columbia and Puerto Rico. This geographic diversification insulates the Company, to some degree, from inevitable downturns in any one market. - Market Growth. The Company seeks to operate in markets where population and employment growth are expected to exceed the national average and where it believes it can become a regionally significant owner or manager of properties. For the period from 1996 through 1999, annual population and employment growth rates in AIMCO's five largest regional markets are forecasted to be 2.2% and 3.6%, respectively. - Product Diversification. The Company's portfolio of apartment properties spans a wide range of apartment community types, both within and among markets. - Capital Replacement. AIMCO believes that the physical condition and amenities of its apartment communities are important factors in its ability to maintain and increase rental rates. The Company allocates approximately $300 annually per owned apartment unit for capital replacements and reserves unexpended amounts for future capital replacements. - Debt Financing. AIMCO's strategy is generally to incur debt to increase its return on equity while maintaining acceptable interest coverage ratios. AIMCO seeks to maintain a ratio of free cash flow to 23 29 combined interest expense and preferred stock dividends of between 2:1 and 3:1, and a ratio of earnings before interest, income taxes, depreciation and amortization (with certain adjustments and after a provision of approximately $300 per owned apartment unit) to debt service of at least 2:1, and to match debt maturities to the character of the assets financed. For the year ended December 31, 1998, the Company was within these targets. The Company uses predominantly long-term, fixed-rate and self-amortizing non-recourse debt in order to avoid the refunding or repricing risks of short-term borrowings. The Company also uses short-term debt financing to fund acquisitions and generally expects to refinance such borrowings with proceeds from equity offerings or long-term debt financings. As of December 31, 1998, approximately 22% of AIMCO's outstanding debt was short-term debt and 78% was long-term debt. - Dispositions. From time to time, the Company sells properties that do not meet its return on investment criteria or that are located in areas where AIMCO does not believe that the long-term neighborhood values justify the continued investment in the properties. - Dividend Policy. AIMCO pays dividends on its Class A Common Stock to share its profitability with its stockholders. The Company distributed 65.8%, 66.5% and 72.3% of FFO to holders of Class A Common Stock for the years ended December 31, 1998, 1997 and 1996, respectively. It is the present policy of the Board of Directors to increase the dividend annually in an amount equal to one-half of the projected increase in FFO, adjusted for capital replacements, subject to minimum distribution requirements to maintain its REIT status. GROWTH STRATEGIES The Company seeks growth through two primary sources -- acquisitions and internal expansion. Acquisition Strategies. The Company believes its acquisition strategies will increase profitability and predictability of earnings by increasing its geographic diversification, economies of scale and opportunities to provide ancillary services to tenants at its properties. Since AIMCO's initial public offering in July 1994, the Company has completed numerous acquisition transactions, expanding its portfolio of owned or managed properties from 132 apartment properties with 29,343 units to 2,147 apartment properties with 379,363 units as of December 31, 1998. The Company acquires additional properties primarily in three ways: - Direct Acquisitions. AIMCO may directly, including through mergers and other business combinations, acquire individual properties or portfolios of properties and controlling interests in entities that own or control such properties or portfolios. To date, a significant portion of AIMCO's growth has resulted from the acquisition of other companies that owned or controlled properties. - Acquisition of Managed Properties. AIMCO believes that its property management operations support its acquisition activities. Since AIMCO's initial public offering, the Company has acquired from its managed portfolio 15 properties comprising 4,432 units for total consideration of $155.4 million. - Increasing its Interest in Partnerships. For properties where AIMCO owns a general partnership interest in the property-owning partnership, the Company may seek to acquire, subject to its fiduciary duties, the interests in the partnership held by third parties for cash or, in some cases, in exchange for OP Units. AIMCO has completed tender offers with respect to 178 partnerships and has purchased additional interests in such partnerships for cash and for OP Units. Internal Growth Strategies. The Company pursues internal growth primarily through the following strategies: - Revenue Increases. The Company increases rents where feasible and seeks to improve occupancy rates. AIMCO's "same store" revenues, rental and other property revenues from the properties owned 24 30 or controlled by AIMCO (based on properties owned from period to period and applying AIMCO's ownership interests in these properties) have grown by 3.3% from the fiscal year ended December 31, 1995 to the fiscal year ended December 31, 1996, by 2.1% from the fiscal year ended December 31, 1996 to the fiscal year ended December 31, 1997, and by 4.7% from the fiscal year ended December 31, 1997 to the fiscal year ended December 31, 1998. - Redevelopment of Properties. The Company believes redevelopment of selected properties in superior locations provides advantages over development of new properties. AIMCO believes that redevelopment generally allows the Company to maintain rents comparable to new properties and, compared to development of new properties, can be accomplished with relatively lower financial risk, in less time and with reduced delays due to governmental regulation. - Expansion of Properties. The Company believes that expansion within or adjacent to properties already owned or managed by the Company also provides growth opportunities at lower risk than new development. Such expansion can offer cost advantages to the extent common area amenities and on-site management personnel can service the property expansions. - Conversion of Affordable Properties; Improvement of Performance. The Company believes that it may be able to significantly increase its return from its portfolio of affordable properties by improving operations at some of its properties or by converting some of these properties to conventional properties. - Ancillary Services. The Company's management believes that its ownership and management of properties provides it with unique access to a customer base for the sale of additional services which generate incremental revenues. The Company currently provides cable television, telephone services, appliance rental, renters' insurance and carport, garage and storage space rental at certain properties. - Controlling Expenses. Cost reductions are accomplished by exploiting economies of scale. As a result of the size of its portfolio and its creation of regional concentrations of properties, the Company has the ability to leverage fixed costs for general and administrative expenditures and certain operating functions, such as insurance, information technology and training, over a larger property base. PROPERTY MANAGEMENT STRATEGIES AIMCO seeks to improve the operating results from its property management business by, among other methods, combining centralized financial control and uniform operating procedures with localized property management decision-making and market knowledge. AIMCO's management operations are organized into four Divisions, each supervised by a Division Vice President, who has, on average, 18 years of experience in apartment management. ACCOUNTING POLICIES AND DEFINITIONS The Company has the following accounting policies and definitions: Funds from Operations. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO in a manner based upon the NAREIT definition, as adjusted for minority interest in the AIMCO Operating Partnership, plus amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payment of dividends on perpetual preferred stock. The Company's management believes that presentation of FFO provides investors with industry accepted measurements which help facilitate understanding of the Company's ability to meet required dividend payments, capital expenditures, and principal payments on its debt. There can be no assurance that the Company's basis of computing FFO is comparable with that of other REITs. 25 31 Capital Replacements. The Company capitalizes spending for items which generally cost more than $250 and have a useful life of more than one year, such as carpet replacement, new appliances, new roofs or parking lot repaving. Capitalized spending which maintains a property is termed a "Capital Replacement." In the experience of the Company's management, this spending is better considered a recurring cost of preserving an asset rather than an additional investment. Consolidation. For financial reporting purposes, the Company consolidates the results of those corporations in which it owns a majority of the outstanding voting stock, and those limited partnerships and limited liability companies in which it owns both a general partnership or managing member interest and controls investment decisions with respect to the underlying assets. The Company generally has a 30% to 51% economic interest in such entities. Entities in which the Company has less than a 30% economic interest or limited control are accounted for on the equity method. The Company policy is generally to hold Class C properties and affordable properties (substantially all of which are Class C properties) in unconsolidated partnerships. The Company accounts for these properties on the equity method in accordance with GAAP. POLICIES OF THE COMPANY WITH RESPECT TO CERTAIN OTHER ACTIVITIES The following is a discussion of certain other investment objectives and policies, financing policies and other policies of the Company. These policies are determined by the officers and directors of AIMCO and may be amended or revised from time to time at their discretion without a vote of AIMCO's stockholders. As the sole general partner of the AIMCO Operating Partnership, AIMCO also determines the investment policies of the AIMCO Operating Partnership. Investment in Others. The Company may also participate with other entities in property ownership, through joint ventures or other types of co-ownership. Any such equity investment may be subject to existing mortgage financing and other indebtedness which would have priority over the equity of the Company in that property. Securities of or Interests in Persons Primarily Engaged in Real Estate Activities. The Company may also acquire securities of or interests in persons engaged in the acquisition, redevelopment and/or management of multifamily apartment properties. Investments in Real Estate Mortgages. While the Company generally emphasizes direct real estate investments, it may, in its discretion and subject to the percentage ownership limitations and gross income tests necessary for REIT qualification, invest in mortgage and other indirect real estate interests, including securities of other real estate investment trusts. The Company has not previously invested in mortgages or securities of other real estate investment trusts and the Company does not presently intend to invest to a significant extent in mortgages or securities of other real estate investment trusts. Operating and Financing Policies. The Company seeks to maintain a ratio of EBITDA (less a provision of approximately $300 per owned apartment unit) to debt (the "Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to the character of the assets financed. See "-- Operating and Financial Strategies -- Debt Financing." The Company, however, may from time to time re-evaluate borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors. The Company may modify its borrowing policy and may increase or decrease its Debt Coverage Ratio policy. To the extent that the AIMCO Board of Directors determines to seek additional capital, the Company may raise such capital through additional equity offerings, debt financing or retention of cash flow (after consideration of provisions of the Code requiring the distribution by a REIT of a certain percentage of taxable income and taking into account taxes that would be imposed on undistributed taxable income), or through a combination of these sources. The Company presently anticipates that any additional borrowings will be made through the AIMCO Operating Partnership, although AIMCO might incur borrowings that would be reloaned to the AIMCO Operating Partnership. The AIMCO Operating Partnership cannot incur indebtedness that is recourse to AIMCO without AIMCO's approval. AIMCO may approve the AIMCO Operating Partnership's incurring additional debt that is recourse to the AIMCO Operating Partnership. Borrowings may 26 32 be unsecured or may be secured by any or all assets of AIMCO, the AIMCO Operating Partnership, or any existing or new property and may have full or limited recourse to all or any portion of the assets of AIMCO, the AIMCO Operating Partnership, or any existing or new property. The Company has not established any limit on the number or amount of mortgages that may be placed on any single property or on its portfolio as a whole. AIMCO may also determine to issue securities senior to the Class A Common Stock, including preferred stock and debt securities (either of which may be convertible into capital stock or be accompanied by warrants to purchase capital stock). The Company may also determine to finance acquisitions through the exchange of properties or issuance of additional OP Units, shares of Class A Common Stock or other securities. If the AIMCO Board of Directors determines to raise additional equity capital, the AIMCO Board of Directors has the authority, without stockholder approval, to issue additional shares of Class A Common Stock or other capital stock (including securities senior to the Class A Common Stock) in any manner (and on such terms and for such consideration) it deems appropriate, including in exchange for property. Such issuances might cause a dilution of a stockholder's investment in AIMCO. If the AIMCO Board of Directors determines to raise additional equity capital to fund investments by the AIMCO Operating Partnership, AIMCO will contribute such funds to the AIMCO Operating Partnership as a contribution to capital and purchase of additional general partnership interests. AIMCO may issue additional shares of Class A Common Stock in connection with the acquisition of OP Units that are tendered to the AIMCO Operating Partnership for redemption. The AIMCO Board of Directors also has the authority to cause the AIMCO Operating Partnership to issue additional OP Units in any manner (and on such terms and for such consideration) as it deems appropriate, including in exchange for property. Any such new OP Units will be redeemable at the option of the holder, which redemption AIMCO intends to cause to be made in Class A Common Stock pursuant to the redemption rights. Conflict of Interest Policies. The Company has adopted certain policies designed to minimize or eliminate conflicts of interests between the Company and its executive officers and directors. Without the approval of a majority of the disinterested directors, the Company will not (i) acquire from or sell to any director, officer or employee of the Company or any entity in which a director, officer or employee of the Company owns more than a 1% interest, or acquire from or sell to any affiliate of any of the foregoing, any assets or other property of the Company, (ii) make any loan to or borrow from any of the foregoing persons, or (iii) engage in any material transaction with the foregoing. In addition, the Company has entered in to employment agreements with Messrs. Considine, Kompaniez and Ira which include provisions intended to eliminate or minimize potential conflicts of interest, and which provide that those persons will be prohibited from engaging directly or indirectly in the acquisition, development, operation or management of other multifamily apartment properties outside of the Company, except with respect to certain investments currently held by such persons, as to which investments those persons have committed to an orderly liquidation. There can be no assurance, however, that these policies always will be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of AIMCO's stockholders as a whole. Policies with Respect to Other Activities. The Company has authority to offer shares of its capital stock or other securities and to repurchase or otherwise reacquire its shares or any other securities, has done so, and may engage in such activities in the future. From its inception, the Company has made loans aggregating $5.1 million to certain entities owning properties subsequently acquired by the Company. No balances remain outstanding on such loans. In the same period, the Company has made loans aggregating $76.5 million to its officers for the purchase of Class A Common Stock and $5.1 million to its officers and other entities to acquire interests in subsidiaries of the Company. The outstanding balances on such loans as of August 31, 1998 were $42.7 million and $3.1 million, respectively. Messrs. Considine and Kompaniez have repaid in part, using $2.0 million in proceeds distributed to them from the sale of NHP Common Stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding promissory notes payable by them to ANHI in an aggregate amount of $3.2 million, which loan was made to them by ANHI to acquire their interest in ANHI. 27 33 In addition, the Company from time to time advances amounts for relocation and other expenses. The Company has not engaged in underwriting securities of other issuers. Each of AIMCO and the AIMCO Operating Partnership intend to make investments in such a way that it will not be treated as an investment company under the Investment Company Act of 1940, as amended. The Company may invest in the securities of other issuers engaged in the ownership, acquisition or management of multifamily apartment properties for the purpose of exercising control. At all times, the Company intends to make investments in such a manner as to be consistent with the requirements of the Code for AIMCO to qualify as a REIT unless, because of changing circumstances or changes in the Code (or in Treasury Regulations), the AIMCO Board of Directors determines that it is no longer in the best interest of AIMCO to qualify as a REIT. AIMCO, as a REIT, is required to distribute annually to holders of Class A Common Stock at least 95% of its "REIT taxable income," which, as defined by the Code and the Treasury Regulations, is generally equivalent to net taxable ordinary income. AIMCO measures its economic profitability, and intends to pay regular dividends to its stockholders, based on earnings during the relevant period. However, the future payment of dividends by AIMCO will be at the discretion of the AIMCO Board of Directors and will depend on numerous factors, including AIMCO's financial condition, its capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as the AIMCO Board deems relevant. CONTRIBUTION AND MANAGEMENT AGREEMENT In order to maintain AIMCO's qualification as a REIT under the Code, AIMCO has acquired, and may in the future acquire, interests in entities in which the AIMCO Operating Partnership does not own any interest (the "QRSs"). AIMCO and the AIMCO Operating Partnership have entered into a Contribution and Management Agreement (the "Management Agreement"), pursuant to which the AIMCO Operating Partnership has acquired from AIMCO, in exchange for interests in the AIMCO Operating Partnership, the economic benefits of the assets owned by the QRSs, and AIMCO has granted the AIMCO Operating Partnership certain rights with respect to the assets owned by the QRSs. Under the Management Agreement, the AIMCO Operating Partnership has a right of first refusal to acquire the assets owned by the QRSs for no additional consideration. Under the Management Agreement, AIMCO is obligated to contribute to the AIMCO Operating Partnership all dividends, distributions and other proceeds received from the QRSs (excluding distributions received in respect of any interests in the AIMCO Operating Partnership). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company operates in one industry segment, the ownership and management of real estate properties. See the consolidated financial statements and notes thereto included elsewhere in or incorporated into this Registration Statement for financial information relating to the Company and the AIMCO Operating Partnership. Properties owned by the QRSs and properties in which the QRSs have ownership interests are included in the AIMCO Properties. COMPETITION There are numerous housing alternatives that compete with the Company's Owned Properties and Managed Properties in attracting residents. The Company's properties compete directly with other multi-family rental apartments and single family homes that are available for rent in the markets in which the Company's properties are located. The Company's properties also compete for residents with new and existing homes and condominiums. The number of competitive properties in a particular area could have a material effect on the Company's ability to lease apartment units at its properties and on the rents charged. The Company competes with numerous real estate companies in acquiring, developing and managing multi-family apartment properties and seeking tenants to occupy the AIMCO Properties. In addition, the Company competes with numerous property management companies in the markets where the Managed Properties are located. 28 34 REGULATION General. Multifamily apartment properties are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which would adversely affect the Company's cash flows from operating activities. In addition, future enactment of rent control or rent stabilization laws or regulations or other laws or regulations regulating multi-family housing may reduce rental revenue or increase operating costs in particular markets. Restrictions Imposed by Laws Benefitting Disabled Persons. Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain Federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional Federal, state and local laws exist which also may require modifications to the Owned Properties, or restrict certain further renovations thereof, with respect to access thereto by disabled persons. For example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the ADA or the FHAA could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although management believes that the Owned Properties are substantially in compliance with present requirements, if the Owned Properties are not in compliance, the Company is likely to incur additional costs to comply with the ADA and the FHAA. HUD Enforcement and Limited Denials. A significant number of the affordable units included in the AIMCO Properties are subject to regulation by the U.S. Department of Housing and Urban Development ("HUD"). HUD has the authority to suspend or deny property owners and managers from participation in HUD programs with respect to additional assistance within a geographic region through imposition of a limited denial of participation ("LDP") by any HUD office or nationwide for violations of HUD regulatory requirements. Environmental Matters. Under federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate and clean up a release of hazardous substances at such property, and may, under such laws and common law, be held liable for property damage and other costs incurred by third parties in connection with such releases. The liability under certain of these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The failure to remediate the property properly may also adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. In connection with its ownership, operation and management of the AIMCO Properties, the Company could be potentially liable for environmental liabilities or costs associated with its properties or properties it may in the future acquire or manage. INSURANCE Management believes that the Owned Properties are covered by adequate fire, flood and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. EMPLOYEES The Company has a staff of employees performing various acquisition, redevelopment and management functions. The Company has approximately 13,500 employees, most of whom are employed at the property level. None of the employees are represented by a union, and the Company has never experienced a work stoppage. The Company believes it maintains satisfactory relations with its employees. 29 35 1998 DEVELOPMENTS Ambassador Apartments Acquisition. On May 8, 1998, Ambassador was merged with and into AIMCO, with AIMCO being the surviving corporation. The purchase price of $713.6 million was comprised of $90.3 million in cash, $372.0 million of assumed debt and up to 6,578,833 shares of Class A Common Stock valued at $251.3 million. Pursuant to the Ambassador merger agreement, all outstanding shares of Ambassador common stock were converted into the right to receive AIMCO Class A Common Stock, at a conversion ratio of 0.553. Concurrently, all outstanding options to purchase Ambassador common stock were converted into cash or options to purchase AIMCO Class A Common Stock, at the same conversion ratio. Contemporaneously with the consummation of the Ambassador merger, a subsidiary of the AIMCO Operating Partnership merged with Ambassador's operating partnership and each outstanding unit of limited partnership interest in the Ambassador operating partnership was converted into the right to receive 0.553 OP Units. Ambassador was a self-administered and self-managed real estate investment trust engaged in the ownership and management of garden-style apartment properties leased primarily to middle income tenants. Ambassador owned 52 apartment communities with a total of 15,728 units located in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas, and managed one property containing 252 units for an unrelated third party. Insignia Merger. On October 1, 1998, Insignia Financial Group, Inc., a Delaware corporation, was merged with and into AIMCO, with AIMCO being the surviving corporation. The purchase price of $1,125.7 million was comprised of approximately 8.4 million shares of Class E Cumulative Convertible Preferred Stock (the "Class E Preferred Stock") valued at $301.2 million, $670.1 million in assumed debt and liabilities (including the $50 million special dividend, assumed liabilities of Insignia Properties Trust and transaction costs), $149.5 million in assumed mandatorily redeemable convertible preferred securities, and $4.9 million in cash. The merger was accounted for as a purchase. The Class E Preferred Stock entitled the holders thereof to receive the same cash dividends per share as holders of Class A Common Stock. In addition, on January 15, 1999, holders of Class E Preferred Stock became entitled to receive a special dividend in an aggregate amount of approximately $50 million, and all outstanding shares of Class E Preferred Stock automatically converted into an equal number of shares of Class A Common Stock. As a result of the Insignia merger, AIMCO acquired; (i) Insignia's interests in Insignia Properties Trust, a Maryland REIT ("IPT"), which was a majority owned subsidiary of Insignia; (ii) Insignia's interest in Insignia Properties, L.P., IPT's operating partnership ("IPLP"); (iii) 100% of the ownership of the Insignia entities that provide multifamily property management and partnership administrative services; (iv) Insignia's interest in multifamily co-investments; (v) Insignia's ownership of subsidiaries that control multifamily properties not included in IPT; (vi) Insignia's limited partner interests in public and private syndicated real estate limited partnerships; and (vii) assets incidental to the foregoing businesses (collectively, the "Insignia Multifamily Business"). IPT Merger. As a result of the Insignia merger, AIMCO acquired approximately 51% of the outstanding shares of beneficial interest of IPT. On February 26, 1999, IPT was merged into AIMCO. Pursuant to the merger, the approximately 11.6 million outstanding shares of IPT that were not held by AIMCO were converted into the right to receive 0.3601 shares of AIMCO Class A Common Stock, resulting in the issuance of approximately 4.3 million shares of AIMCO Class A Common Stock, valued at approximately $158.8 million. Individual Property Acquisitions. During the year ended December 31, 1998, the Company purchased or acquired control of 30 properties consisting of 6,707 apartment units for total consideration of $316.5 million. The Company's purchase price consisted of $172.3 million in assumed mortgage obligations, $96.0 million in cash, and $48.2 million of OP Units. Tender Offers. During 1998, the Company made separate offers to the limited partners of 308 partnerships to acquire their limited partnership interests. The Company paid approximately $83 million in cash and OP Units to acquire limited partnership interests pursuant to the offers. 30 36 Property Dispositions. In 1998, the Company sold eleven properties for an aggregate of $85.3 million. Cash proceeds to the Company from the sales were used to repay a portion of the Company's outstanding short-term indebtedness. The results of operations of six of these properties were accounted for by the Company under the equity method. The Company recognized a gain of approximately $4.7 million on the disposition of the five consolidated properties. Debt Assumptions and Financings. During the year ended December 31, 1998, the Company assumed or incurred new non-recourse indebtedness totalling $544.4 million in connection with the acquisition of 82 apartment properties. In January 1998, the Company entered into a new $50 million credit agreement with Bank of America National Trust and Savings Association and Bank Boston, N.A. The AIMCO Operating Partnership is the borrower under the credit agreement, but all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. In October 1998, the Company amended and restated the credit agreement. The agreement now provides for a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The credit facility matures on September 30, 1999, unless extended, at the discretion of the lenders. The credit agreement also provides for the conversion of the revolving facility into a three-year term loan. Under the credit agreement, as amended in January 1999, loans bear interest at LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The margins range from 2.25% to 2.75% for a LIBOR rate borrowing and 0.75% to 1.25% for a base rate borrowing, both dependant upon the total balance outstanding relative to the calculated borrowing base value. The balance outstanding under the credit facility was $84.3 million as of December 31, 1998. In February 1998, the AIMCO Operating Partnership entered into a five year $50 million secured credit facility agreement with Washington Mortgage Financial Group, Ltd. AIMCO and certain subsidiaries guaranteed loans under the agreement and the guarantees were secured by certain of their assets, including four apartment properties and two mortgage notes. Under the agreement, advances to the AIMCO Operating Partnership were funded with the proceeds from the sale to investors of mortgage-backed securities issued by Fannie Mae and secured by the advance and an interest in the collateral. The interest rate on each advance was determined by investor bids for such mortgage-backed securities, plus a margin. In February 1999, the Company terminated the credit facility and repaid all outstanding borrowings with proceeds from new long-term, fully amortizing indebtedness secured by certain properties that previously secured the credit facility. In October 1998, the AIMCO Operating Partnership and AIMCO entered into an interim term loan agreement with Lehman Brothers Inc. and one of its affiliates, and borrowed $300 million thereunder. The loan is unsecured and matures on September 30, 1999. The proceeds were used to finance the Insignia merger and related fees and expenses, to refinance existing indebtedness, and for general working capital purposes. The loan bears interest at a base rate or the rate at which eurodollar deposits for one month are offered in the interbank eurodollar market, plus, in either case, a margin which averages 1.375% to 2.208% in the case of base rate loans, and 2.375% to 3.208% in the case of eurodollar loans. The base rate will be the higher of (i) the primary rate of Citibank, N.A., (ii) the secondary market rate for three month certificates of deposit plus 1%, or (iii) the federal funds effective rate plus 0.5%. In November 1998, the Company used the proceeds of $100 million from the sale of AIMCO's Class J Cumulative Preferred Stock to pay down the loan. As of December 31, 1998, there was $196 million of indebtedness outstanding under the loan agreement. In February 1999, net proceeds of $115.0 million from the sale of 5,000,000 shares of AIMCO's Class K Convertible Cumulative Preferred Stock were used to further paydown the loan. In October 1998, as the result of the acquisition of Insignia, AIMCO, directly or through its subsidiaries, became the owner of approximately 51% of IPT. Prior to the acquisition, IPT's operating partnership had entered into a $50 million revolving credit agreement with Lehman Commercial Paper. Inc., as syndication agent, and First Union National Bank, as administrative agent. Borrowings under the IPLP credit agreement may be used to finance certain permitted investments and refinance certain other investments. The credit agreement matures on December 30, 2000. The credit agreement provides for interest at a rate based on LIBOR plus 2.50% per annum or a base rate of the higher of prime rate or the Federal Funds rate plus 0.50%. As of December 31, 1998, there was $30 million outstanding under the credit agreement. 31 37 In December 1998, the Company completed the restructuring of $222 million in variable rate tax-exempt debt assumed in conjunction with the May 1998 merger with Ambassador. The debt was secured by 27 properties located in Texas, Arizona, Tennessee and Illinois. Through the restructuring, the Company converted the previous tax-exempt debt to $204 million in fixed rate, fully amortizing tax-exempt debt secured by 26 properties. The new debt has a weighted average interest rate of 5.8% and matures in 23 years. The Company also incurred $7.1 million of taxable debt secured by three of the properties, repaid $11.4 million of the previous tax-exempt debt, released $21.5 million in cash reserves and impound accounts held by the prior mortgagors, and released two properties that served as additional collateral for the previous debt. In February and March 1999, the Company incurred $83.4 million of long-term, fixed rate, fully amortizing mortgage debt secured by 13 properties. The Company used the $81.5 million of net proceeds from the financings to repay debt under the interim loan agreement with Lehman Brothers Inc., to repay debt under its credit facility with Bank of America National Trust and Savings Association and Bank Boston, N.A. and to provide working capital. As of March 11, 1999, the balance outstanding under the interim loan agreement was $25 million, under the credit facility was $74.8 million and under the IPT credit agreement was $45 million. The amount available under the credit facility at March 11, 1999 was $24.0 million. POTENTIAL PROPERTY ACQUISITIONS In the ordinary course of business, the Company engages in discussions and negotiations regarding the acquisition of apartment properties (including interests in entities that own apartment properties). The Company frequently enters into contracts and nonbinding letters of intent with respect to the purchase of properties. These contracts are typically subject to certain conditions and often permit the Company to terminate the contract in its sole and absolute discretion if it is not satisfied with the results of its due diligence investigation of the properties. The Company believes that such contracts essentially result in the creation of an option on the subject properties and give the Company greater flexibility in seeking to acquire properties. As of March 8, 1999, the Company had under contract or letter of intent an aggregate of 32 multi-family apartment properties with a maximum aggregate purchase price of approximately $571.1 million, including estimated capital improvements, which, in some cases, may be paid in the form of assumption of existing debt. All such contracts are subject to termination by the Company as described above. No assurance can be given that any of these possible acquisitions will be completed or, if completed, that they will be accretive to FFO on a per unit basis. LITIGATION The Company is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiary, taken as a whole. In connection with the Company's acquisition of interests in limited partnerships that own or manage apartments properties, through tender offers or otherwise, from time to time, the Company is subject to legal actions arising from such activities, including allegations that such activities may involve breaches of fiduciary duties to the limited partners of such partnerships or may violate the relevant partnership agreements. The Company's policy is to fulfill its fiduciary obligations to its limited partners and with the partnership agreements to which it is a party, and does not expect such claims to have a material adverse effect on the consolidated financial conditions or results of operations of the Company and its subsidiaries taken as a whole. YEAR 2000 READINESS General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems. The Year 2000 Issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing 32 38 disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Company has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing, and implementation. To date, the Company has fully completed its assessment of all information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase. During 1997 and 1998, AIMCO identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. The Company has replaced its mainframe system, including the creation of new applications, at a total cost of approximately $1.1 million. In August 1998, the Year-2000 compliant system became fully functional. In addition to the mainframe, PC-based network servers and routers and desktop PCs were analyzed for compliance. AIMCO has begun to replace each of the non-compliant network connections and desktop PCs and, as of December 31, 1998, had completed approximately 75% of this effort. The total cost to replace the PC-based network servers and routers and desktop PCs is expected to be approximately $1.2 million, of which $1.0 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year-2000 compliant systems by March 31, 1999. AIMCO utilizes a combination of off-the-shelf commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In 1997, when AIMCO merged with NHP Incorporated, the core financial system used by NHP was Year-2000 compliant. During 1998, AIMCO integrated all of its core financial systems to this compliant system for general ledger and financial reporting purposes. In 1997, AIMCO determined that the software used for property management and rent collection was not Year 2000 compliant. During 1998, AIMCO implemented a Year 2000 compliant system at each of its owned or managed properties, at a cost of $1.7 million. During 1998, AIMCO acquired 82 properties and acquired the Insignia multifamily business. Insignia owned or managed 1,100 properties. As properties are acquired, AIMCO converts the existing property management and rent collection systems to AIMCO's Year 2000 compliant systems. The estimated additional costs to convert such systems at all recently acquired properties, including those acquired from Insignia, is $200,000, and the implementation and testing process is expected to be completed by March 31, 1999. The final software area is the office software and server operating systems. AIMCO has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by March 31, 1999. AIMCO has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, AIMCO began taking a census and inventorying embedded systems (including those devices that use time to control systems and machines at specific properties, including elevators, heating, ventilating and air conditioning systems, and security and alarm systems). The Company has chosen to focus its attention mainly upon security systems, elevators, heating-ventilation-air-conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put AIMCO at risk 33 39 financially or operationally. We intend to have a third-party conduct an audit of these systems and report their findings by March 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of December 31, 1998, we have evaluated approximately 86% of the operating equipment for Year 2000 compliance. The total cost incurred as of December 31, 1998 to replace or repair the operating equipment was approximately $70,000. We estimate the cost to replace or repair any remaining operating equipment is approximately $325,000, and we expect to be completed by April 30, 1999. We continue to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within our enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000. AIMCO continues to conduct surveys of its banking and vendor relationships to assess risks regarding their Year 2000 readiness. AIMCO has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. AIMCO has updated data transmission standards with two of the three financial institutions. AIMCO's contingency plan in this regard is to move accounts from any institution that cannot be certified 2000 compliant by June 1, 1999. The Company does not rely heavily on any single vendor for goods and services and does not have significant suppliers and subcontractors who share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 compliant. Management does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Company. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000. The total cost of the Year 2000 project is estimated at $3.4 million and is being funded from operating cash flows. To date, the Company has incurred approximately $2.7 million ($0.5 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.4 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.3 million relates to repair of hardware and software and will be expensed as incurred. Risks Associated with the Year 2000. Management believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failure, for example, equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000. The Company has contingency plans for certain critical application and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 34 40 DESCRIPTION OF PREFERRED STOCK GENERAL AIMCO may issue, from time to time, shares of one or more series or classes of Preferred Stock. The following description sets forth certain general terms and provisions of the Preferred Stock to which any Prospectus Supplement may relate. The particular terms of any series of Preferred Stock that may be issued and sold pursuant hereto, and the extent, if any, to which such general provisions may apply to the series of Preferred Stock so offered will be described in the Prospectus Supplement relating to such Preferred Stock. The following summary of certain provisions of the Preferred Stock do not purport to be complete and is subject to, and is qualified in its entirety by express reference to, the provisions of the Charter relating to a specific series of the Preferred Stock, which will be in the form filed as an exhibit to or incorporated by reference in the Registration Statement of which this Prospectus is a part at or prior to the time of issuance of such series of Preferred Stock. The Charter authorizes the issuance of up to 510,750,000 shares of its capital stock. As of February 28, 1999, 484,021,780 shares were classified as Class A Common Stock, 750,000 shares were classified as Class B Cumulative Convertible Preferred Stock, par value $.01 per share ("Class B Preferred Stock"), 2,760,000 shares were classified as Class C Cumulative Preferred Stock, par value $.01 per share ("Class C Preferred Stock"), 4,600,000 shares were classified as Class D Cumulative Preferred Stock, par value $.01 per share ("Class D Preferred Stock"), 4,050,000 shares were classified as Class G Cumulative Preferred Stock, par value $.01 per share ("Class G Preferred Stock"), 2,300,000 shares were classified as Class H Cumulative Preferred Stock, par value $.01 per share ("Class H Preferred Stock"), 2,000,000 shares were classified as Class J Cumulative Convertible Preferred Stock, par value $.01 per share ("Class J Preferred Stock") and 5,750,000 shares were classified as Class K Convertible Cumulative Preferred Stock, par value $.01 per share ("Class K Preferred Stock"). Under the Charter, the AIMCO Board of Directors has the authority to classify and reclassify any of its unissued capital Stock into shares of Preferred Stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of capital Stock including, but not limited to, ownership restrictions consistent with the Ownership Limit with respect to each series or class of capital Stock, and the number of shares constituting each series or class, and to increase or decrease the number of shares of any such series or class, to the extent permitted by the Maryland General Corporation Law (the "MGCL"). The AIMCO Board of Directors is authorized to determine for each series of Preferred Stock, and the Prospectus Supplement will set forth with respect to each class or series that may be issued and sold pursuant hereto: (i) the designation of such shares and the number of shares that constitute such series, (ii) the dividend rate (or the method of calculation thereof), if any, on the shares of such series and the priority as to payment of dividends with respect to other classes or series of capital stock of AIMCO, (iii) the dividend periods (or the method of calculation thereof), (iv) the voting rights of the shares, (v) the liquidation preference and the priority as to payment of such liquidation preference with respect to other classes or series of capital stock of AIMCO and any other rights of the shares of such series upon any liquidation or winding-up of AIMCO, (vi) whether or not and on what terms the shares of such series will be subject to redemption or repurchase at the option of AIMCO, (vii) whether and on what terms the shares of such series will be convertible into or exchangeable for other debt or equity securities of AIMCO, (viii) whether the shares of such series of Preferred Stock will be listed on a securities exchange, (ix) any special United States federal income tax considerations applicable to such series, and (x) the other rights and privileges and any qualifications, limitations or restrictions of such rights or privileges of such series not inconsistent with the Charter and the MGCL. DIVIDENDS Holders of shares of Preferred Stock will be entitled to receive, when and as declared by the AIMCO Board of Directors, out of funds of AIMCO legally available therefor, an annual cash dividend payable at such dates and at such rates, if any, per share per annum as set forth in the applicable Prospectus Supplement. 35 41 Each series of Preferred Stock that may be issued and sold pursuant hereto, will rank junior as to dividends to any Preferred Stock that may be issued in the future that is expressly senior as to dividends to the Preferred Stock. If at any time AIMCO has failed to pay accrued dividends on any such senior shares at the time such dividends are payable, AIMCO may not pay any dividend on the Preferred Stock or redeem or otherwise repurchase shares of Preferred Stock until such accumulated but unpaid dividends on such senior shares have been paid or set aside for payment in full by AIMCO. No dividends (other than in Class A Common Stock or Class B Common Stock (collectively, the "Common Stock") or other capital Stock ranking junior to the Preferred Stock of any series as to dividends and upon liquidation) shall be declared or paid or set aside for payment, nor shall any other distribution be declared or made upon the Common Stock, or any other capital stock of AIMCO ranking junior to or on a parity with the Preferred Stock of such series as to dividends, nor shall any Common Stock or any other capital stock of AIMCO ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by AIMCO (except by conversion into or exchange for other capital stock of AIMCO ranking junior to the Preferred Stock of such series as to dividends and upon liquidation) unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for all past dividend periods and the then current dividend period and (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period; provided, however, that any monies theretofore deposited in any sinking fund with respect to any Preferred Stock in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of such Preferred Stock in accordance with the terms of such sinking fund, regardless of whether at the time of such application full cumulative dividends upon shares of the Preferred Stock outstanding on the last dividend payment date shall have been paid or declared and set apart for payment; and provided, further, that any such junior or parity preferred stock or Common Stock may be converted into or exchanged for stock of AIMCO ranking junior to the Preferred Stock as to dividends. The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear interest. CONVERTIBILITY The applicable Prospectus Supplement for each series of Preferred Stock that may be issued and sold pursuant hereto will set forth the terms and conditions of such series of Preferred Stock with respect to whether such series of Preferred Stock will be convertible into, or exchangeable for, other securities or property, including the initial conversion or exchange rate and any adjustments thereto, the conversion or exchange period and any other conversion or exchange provisions. REDEMPTION AND SINKING FUND The applicable Prospectus Supplement for each series of Preferred Stock that may be issued and sold pursuant hereto will set forth the terms and conditions of such series of Preferred Stock with respect to redemption rights and the benefit of any sinking fund, including the dates and redemption prices of any such redemption, any conditions thereto, and any other redemption or sinking fund provisions. LIQUIDATION RIGHTS In the event of any liquidation, dissolution or winding up of AIMCO, the holders of shares of each series of Preferred Stock that may be issued and sold pursuant hereto are entitled to receive out of assets of AIMCO available for distribution to stockholders, before any distribution of assets is made to holders of: (i) any other 36 42 shares of Preferred Stock ranking junior to such series of Preferred Stock as to rights upon liquidation, dissolution or winding up; and (ii) shares of Common Stock, liquidating distributions per share in the amount of the liquidation preference specified in the applicable Prospectus Supplement for such series of Preferred Stock plus any dividends accrued and accumulated but unpaid to the date of final distribution; but the holders of each series of Preferred Stock will not be entitled to receive the liquidating distribution of, plus such dividends on, such shares until the liquidation preference of any shares of AIMCO's capital stock ranking senior to such series of the Preferred Stock as to the rights upon liquidation, dissolution or winding up shall have been paid (or a sum set aside therefor sufficient to provide for payment) in full. If upon any liquidation, dissolution or winding up of AIMCO, the amounts payable with respect to the Preferred Stock, and any other Preferred Stock ranking as to any such distribution on a parity with the Preferred Stock are not paid in full, the holders of the Preferred Stock and such other parity preferred stock will share ratably in any such distribution of assets in proportion to the full respective preferential amount to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Preferred Stock will not be entitled to any further participation in any distribution of assets by AIMCO. Neither a consolidation or merger of AIMCO with another corporation nor a sale of securities shall be considered a liquidation, dissolution or winding up of AIMCO. VOTING RIGHTS Holders of Preferred Stock that may be issued and sold pursuant hereto will have the voting rights required by law and the voting rights described below. Whenever dividends on any applicable series of Preferred Stock or any other class or series of stock ranking on a parity with the applicable series of Preferred Stock with respect to the payment of dividends shall be in arrears for the equivalent of six quarterly dividend periods, whether or not consecutive, the holders of shares of such series of Preferred Stock (voting separately as a class with all other series of Preferred Stock then entitled to such voting rights) will be entitled to vote for the election of two of the authorized number of directors of AIMCO at the next annual meeting of stockholders and at each subsequent meeting until all dividends accumulated on such series of Preferred Stock shall have been fully paid or set apart for payment. The term of office of all directors elected by the holders of such Preferred Stock shall terminate immediately upon the termination of the right of the holders of such Preferred Stock to vote for directors. Holders of shares of Preferred Stock that may be issued and sold pursuant hereto will have one vote for each share held. So long as any shares of any series of Preferred Stock remain outstanding, AIMCO shall not, without the consent of holders of at least two-thirds of the shares of such series of Preferred Stock outstanding at the time, voting separately as a class with all other series of Preferred Stock of AIMCO upon which like voting rights have been conferred and are exercisable, (i) issue or increase the authorized amount of any class or series of stock ranking prior to the outstanding Preferred Stock as to dividends or upon liquidation or (ii) amend, alter or repeal the provisions of the Charter relating to such series of Preferred Stock, whether by merger, consolidation or otherwise, so as to materially adversely affect any power, preference or special right of such series of Preferred Stock or the holders thereof; provided, however, that any increase in the amount of the authorized Common Stock or authorized Preferred Stock or any increase or decrease in the number of shares of any series of Preferred Stock or the creation and issuance of other series of Common Stock or Preferred Stock ranking on a parity with or junior to Preferred Stock as to dividends and upon liquidation, dissolution or winding up shall not be deemed to materially adversely affect such powers, preferences or special rights. MISCELLANEOUS The holders of Preferred Stock will have no preemptive rights. The Preferred Stock that may be issued and sold pursuant hereto, upon issuance against full payment of the purchase price therefor, will be fully paid and nonassessable. Shares of Preferred Stock redeemed or otherwise reacquired by AIMCO shall resume the status of authorized and unissued shares of Preferred Stock undesignated as to series, and shall be available for subsequent issuance. The applicable Prospectus Supplement will set forth the restrictions, if any, on repurchase or redemption of the Preferred Stock while there is any arrearage on sinking fund installments. Payment of dividends on, and the redemption or repurchase of, any series of Preferred Stock 37 43 may be restricted by loan agreements, indentures and other agreements entered into by AIMCO. The applicable Prospectus Supplement will describe any material contractual restrictions on such dividend payments. OTHER RIGHTS The shares of a series of Preferred Stock that may be issued and sold pursuant hereto will have the preferences, voting powers or relative, participating, optional or other special rights set forth above or in the applicable Prospectus Supplement or the Charter or as otherwise required by law. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for each series of Preferred Stock that may be issued and sold pursuant hereto will be designated in the applicable Prospectus Supplement. CLASS B PREFERRED STOCK On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred Stock to an institutional investor (the "Preferred Share Investor") in a private transaction. The Class B Preferred Stock (a) ranks prior to the Common Stock with respect to dividends, liquidation, dissolution and winding-up, and has an aggregate liquidation value of $75 million and (b) ranks on parity with the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and the Class K Preferred Stock. Holders of the Class B Preferred Stock are entitled to receive, when, as and if declared by the AIMCO Board of Directors, quarterly cash dividends per share equal to the greater of (i) $1.78125 (the "Base Rate") and (ii) the cash dividends declared on the number of shares of Class A Common Stock into which one share of Class B Preferred Stock is convertible. On or after August 4, 1998, each share of Class B Preferred Stock may be converted at the option of the holder into 3.28407 shares of Class A Common Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any or all of the Class B Preferred Stock on or after August 4, 2002, at a redemption price of $100 per share, plus unpaid dividends accrued on the shares redeemed. Holders of Class B Preferred Stock, voting as a class with the holders of all AIMCO capital stock that ranks on a parity with the Class B Preferred Stock with respect to the payment of dividends or upon liquidation, dissolution, winding up or otherwise ("Class B Parity Stock"), will be entitled to elect (i) two directors of AIMCO if six quarterly dividends (regardless of whether consecutive) on the Class B Preferred Stock or any Class B Parity Stock are in arrears, and (ii) one director of AIMCO if for two consecutive quarterly dividend periods AIMCO fails to pay at least $0.4625 in dividends on the Class A Common Stock. The affirmative vote of the holders of two-thirds of the outstanding shares of Class B Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class B Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class B Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. If the IRS were to make a final determination that AIMCO does not qualify as a REIT in accordance with Sections 856 through 860 of the Internal Revenue Code, the Base Rate for the quarterly cash dividends on the Class B Preferred Stock would increase to $3.03125 per share. The agreement pursuant to which AIMCO issued the Class B Preferred Stock (the "Preferred Share Purchase Agreement") provides that the Preferred Share Investor may require AIMCO to repurchase such investor's Class B Preferred Stock in whole or in part at a price of 105% of the liquidation preference thereof, plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code, or (ii) upon the occurrence of a change of control (as defined in the Preferred Share Purchase Agreement). The Preferred Share Purchase Agreement also provides that, so long as the Preferred Share Investor owns Class B Preferred Stock with an aggregate liquidation preference of at least $18.75 million, neither AIMCO, the AIMCO Operating Partnership nor any subsidiary of AIMCO may issue preferred securities or incur indebtedness for borrowed money if immediately following such issuance and after giving effect thereto and the application of the net proceeds therefrom, AIMCO's ratio of aggregate consolidated earnings before interest, taxes, depreciation and 38 44 amortization to aggregate consolidated fixed charges for the four fiscal quarters immediately preceding such issuance would be less than 1.5 to 1. Subject to certain exceptions specified in the provisions of the Charter establishing the terms of the Class B Preferred Stock, no holder may own, or be deemed to own by virtue of various attribution and constructive ownership provisions of the Internal Revenue Code and Rule 13d-3 under the Securities Exchange Act of 1934, shares of Class B Preferred Stock with a value in excess of the amount by which (i) 8.7% (or 15% in the case of certain pension trusts described in the Internal Revenue Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO exceeds (ii) the aggregate value of all shares of capital stock of AIMCO, other than Class B Preferred Stock, that are owned by such holder (the "Class B Preferred Ownership Limit"). The AIMCO Board of Directors may waive such ownership limit if evidence satisfactory to the AIMCO Board and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO Board of Directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class B Preferred Stock in excess of the Class B Preferred Ownership Limit, or shares of Class B Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Internal Revenue Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the stock. Shares of Class B Preferred Stock transferred in excess of the Class B Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class B Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the stock on the date that AIMCO determines to purchase the stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO Board determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class B Preferred Stock bear a legend referring to the restrictions described above. CLASS C PREFERRED STOCK On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C Preferred Stock in an underwritten public offering for net proceeds of approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the Common Stock, and any other class or series of capital stock of AIMCO if the holders of the Class C Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class C Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any other class or series of capital stock of AIMCO if the holders of such class of stock or series and the Class C Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class C Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class C Preferred Stock ("Class C Senior Stock"). 39 45 Holders of Class C Preferred Stock are entitled to receive cash dividends at the rate of 9% per annum of the $25 liquidation preference (equivalent to $2.25 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class C Junior Stock, the holders of Class C Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class C Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class C Parity Stock, then such proceeds shall be distributed among the holders of Class C Preferred Stock and any such other Class C Parity Stock ratably in the same proportion as the respective amounts that would be payable on such Class C Preferred Stock and any such other Class C Parity Stock if all amounts payable thereon were paid in full. On and after December 23, 2002, AIMCO may redeem shares of Class C Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class C Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class C Preferred Stock has no stated maturity and will not be subject to any sinking find or mandatory redemption provisions. Holders of shares of Class C Preferred Stock have no voting rights, except that if distributions on Class C Preferred Stock or any series or class of Class C Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class C Preferred Stock (voting together as a single class with all other shares of Class C Parity Stock which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class C Preferred Stock called for such purpose. The affirmative vote of the holders of two thirds of the outstanding shares of Class C Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class C Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class C Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class C Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS D PREFERRED STOCK On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D Preferred Stock, in an underwritten public offering, for net proceeds of approximately $101.5 million. The Class D Preferred Stock (a) ranks prior to the Common Stock, and any other class or series of capital stock of AIMCO if the holders of the Class D Preferred Stock are to be entitled to the receipt of dividends of or amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class D Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any other class or series of capital stock of AIMCO if the holders of such class of stock or series and the Class D Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class D Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class D Preferred Stock ("Class D Senior Stock"). Holders of Class D Preferred Stock are entitled to receive cash dividends at the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to $2.1875 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and 40 46 October 15 of each year. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class D Junior Stock, the holders of Class D Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class D Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class D Parity Stock, then such proceeds shall be distributed among the holders of Class D Preferred Stock and any such other Class D Parity Stock ratably in the same proportion as the respective amounts that would be payable on such Class D Preferred Stock and any such other Class D Parity Stock if all amounts payable thereon were paid in full. On and after February 19, 2003, AIMCO may redeem shares of Class D Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class D Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class D Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class D Preferred Stock have no voting rights, except that if distributions on Class D Preferred Stock or any series or class of Class D Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class D Preferred Stock (voting together as a single class with all other shares of Class D Parity Stock which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class D Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class D Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class D Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class D Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class D Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS G PREFERRED STOCK On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred Stock, in an underwritten public offering for net proceeds of approximately $98.0 million. The Class G Preferred Stock (a) ranks prior to the Common Stock and any other class or series of capital Stock of AIMCO, if the holders of the Class G Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class G Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any other class or series of capital Stock of AIMCO, if the holders of such class of Stock or series and the Class G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class G Parity Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class G Preferred Stock ("Class G Senior Stock"). Holders of Class G Preferred Stock are entitled to receive cash dividends at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to $2.34375 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing October 15, 1998. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class G Junior Stock, the holders of Class G Preferred Stock shall be entitled to receive a liquidation 41 47 preference of $25 per share (the "Class G Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class G Parity Stock, then such proceeds shall be distributed among the holders of Class G Preferred Stock and any such other Class G Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class G Preferred Stock and any such other Class G Parity Stock if all amounts payable thereon were paid in full. On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class G Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class G Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class G Preferred Stock have no voting rights, except that if distributions on Class G Preferred Stock or any series or class of Class G Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class G Preferred Stock (voting together as a single class with all other shares of Class G Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class G Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class G Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class G Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class G Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class G Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS H PREFERRED STOCK On August 11, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred Stock, in an underwritten public offering for net proceeds of approximately $48.1 million. The Class H Preferred Stock (a) ranks prior to the Common Stock and any other class or series of capital Stock of AIMCO if the holders of the Class H Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class H Junior Stock"), (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class G Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock, and with any other class or series of capital Stock of AIMCO, if the holders of such class of Stock or series, shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class H Parity Stock") and (c) ranks junior to any class or series of capital Stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class H Preferred Stock ("Class H Senior Stock"). Holders of Class H Preferred Stock are entitled to receive cash dividends at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to $2.375 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing October 15, 1998. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class H Junior Stock, the holders of Class H Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class H Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution shall be insufficient to pay the preference 42 48 described above and any liquidating payments on any other shares of any class or series of Class H Parity Stock, then such proceeds shall be distributed among the holders of Class H Preferred Stock and any such other Class H Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class H Preferred Stock and any such other Class H Parity Stock if all amounts payable thereon were paid in full. On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class H Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class H Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class H Preferred Stock have no voting rights, except that if distributions on Class H Preferred Stock or any series or class of Class H Parity Stock shall be in arrears for six or more quarterly periods, the number of directors constituting the AIMCO Board shall be increased by two and the holders of Class H Preferred Stock (voting together as a single class with all other shares of Class H Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class H Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class H Preferred Stock will be required to amend the Charter in any manner that would adversely affect the rights of the holders of Class H Preferred Stock, and to approve the issuance of any capital Stock that ranks senior to the Class H Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class H Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS J PREFERRED STOCK On November 6, 1998, AIMCO issued 1,250,000 shares of its Class J Preferred Stock in a private transaction, including 250,000 shares of Class J Preferred Stock to the AIMCO Operating Partnership. The Class J Preferred Stock (a) ranks prior to the Common Stock with respect to dividends, liquidation, dissolution and winding-up ("Class J Junior Stock"), and has a liquidation value of $100 per share and (b) ranks on parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and the Class K Preferred Stock ("Class J Parity Stock"). Holders of the Class J Preferred Stock are entitled to receive, when, as and if declared by the AIMCO Board of Directors, quarterly cash dividends per share equal to (i) 7% per annum of the liquidation preference thereof for the period beginning on and including November 6, 1998 and lasting until November 15, 1998; (ii) 8% per annum of the per share liquidation preference for the period beginning on and including November 15, 1998 and lasting until November 15, 1999; (iii) 9% per annum of the per share liquidation preference for the period beginning on and including November 15, 1999 and lasting until November 15, 2000; and (iv) 9.5% per annum of the per share liquidation preference thereafter. Such dividends will be cumulative from November 6, 1998, whether or not in any quarterly dividend period(s) such dividends will be declared or there will be funds legally available for the payment of such dividends. On or after November 6, 1998, each share of Class J Preferred Stock may be converted at the option of the holder into 2.5 shares of Class A Common Stock, subject to certain anti-dilution adjustments. AIMCO may convert each share of Class J Preferred Stock into 2.5 shares of Class A Common Stock (subject to certain anti-dilution adjustments) (a) after November 6, 2002, if the market price of the Class A Common Stock in the five most recent trading days is equal to or greater than $40 or (b) at any time on or prior to November 6, 2002, if the internal rate of return associated with an outstanding share of Class J Preferred Stock exceeds 12.5%. Holders of Class J Preferred Stock, voting as a class with the holders of all Class J Parity Stock, will be entitled to elect two directors of AIMCO if six quarterly dividends (regardless of whether consecutive) on the Class J Preferred Stock or any Class J Parity Stock are in arrears, whether or not earned or declared. The affirmative vote of the holders of two-thirds of the outstanding shares of Class J Preferred Stock will be 43 49 required to amend the Charter in any manner that would adversely affect the rights of the holders of Class J Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class J Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class J Preferred Stock that are similar to those for the Class B Preferred Stock. CLASS K PREFERRED STOCK On February 11, 1999, AIMCO issued 5,000,000 shares of its Class K Preferred Stock in an underwritten public offering for net proceeds of approximately $120.3 million. The Class K Preferred Stock (a) ranks prior or senior to the common stock and any other class or series of capital stock of AIMCO if the holders of Class K Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of shares of such class or series ("Class K Junior Stock"); (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other class or series of capital stock of AIMCO if the holders of such class or series of stock and the Class K Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority of one over the other ("Class K Parity Stock"); and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series shall be entitled to the receipt of dividends and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class K Preferred Stock ("Class K Senior Stock"). Holders of Class K Preferred Stock are entitled to receive quarterly cash dividends on the Class K Preferred Stock in an amount per share equal to (i) from the date of original issuance of the Class K Preferred Stock through and including February 17, 2002, the greater of $0.50 or the quarterly cash dividend paid or payable (determined on each of the dividend payment dates for the Class K Preferred Stock referred to below) on the number of shares of Class A Common Stock (or portion thereof) into which a share of Class K Preferred Stock is convertible, and (ii) from and after February 18, 2002, the greater of $0.625 or the quarterly cash dividend paid or payable (determined on each of the dividend payment dates for the Class K Preferred Stock referred to below) on the number of shares of Class A Common Stock (or portion thereof) into which a share of Class K Preferred Stock is convertible. Such dividends are cumulative from the date of original issue and are payable quarterly on February 18, May 18, August 18 and November 18 of each year. Upon any liquidation, dissolution or winding up of AIMCO, before any payment or distribution by AIMCO shall be made to or set apart for the holders of any shares of Class K Junior Stock, the holders of shares of Class K Preferred Stock shall be entitled to receive a liquidation preference of $25 per share (the "Class K Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If the proceeds available for distribution shall be insufficient to pay the above described preference and any liquidating payments on any other shares of any class or series of Class K Parity Stock, then such proceeds shall be distributed among the holders of Class K Preferred Stock and any such other Class K Parity Stock ratably in the same proportion as the respective amounts that would be payable on such Class K Preferred Stock and any such other Class K Parity Stock if all amounts payable thereon were paid in full. Shares of Class K Preferred Stock are not redeemable by AIMCO prior to February 20, 2002 (except in certain limited circumstances relating to AIMCO's maintenance of its ability to qualify as a REIT). After February 20, 2002, AIMCO may, at its option, redeem shares of Class K Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 102% (100% on or after February 18, 2003) of the Class K Liquidation Preference, plus all accumulated, accrued and unpaid dividends, if any, to the date fixed for redemption. AIMCO can redeem shares of Class K Preferred Stock for cash, or for shares of Class A Common Stock, in which case, AIMCO will issue, as payment of the redemption price for each share of Class K Preferred Stock to be redeemed, such number of shares of Class A Common Stock that equals 44 50 (x) 105% of the cash redemption price then in effect for the Class K Preferred Stock, divided by (y) the market price of the Class A Common Stock, subject to adjustment in certain circumstances. Each share of Class K Preferred Stock is currently convertible into 0.59524 shares of Class A Common Stock of AIMCO, adjusted as described below. The conversion price is subject to adjustment upon the occurrence of certain events, including (i) the issuance of Class A Common Stock as a dividend or distribution on the Class A Common Stock; (ii) a combination, subdivision or reclassification of outstanding Class A Common Stock; (iii) the issuance to all holders of Class A Common Stock of rights, options or warrants (expiring within 45 days after the record date for determining stockholders entitled to receive such rights or warrants) entitling such holders to subscribe for or purchase Class A Common Stock at less than the then current market price; and (iv) the distribution to all holders of Class A Common Stock of capital stock of AIMCO (other than Class A Common Stock), evidences of indebtedness of AIMCO, assets or rights or warrants to subscribe for or purchase securities of AIMCO (excluding (a) dividends, distributions, rights, options and warrants pursuant to (i), (ii) and (iii) above, (b) dividends and distributions paid in cash out of the retained earnings of AIMCO, and (c) distributions upon mergers or consolidations of AIMCO). No adjustment to the conversion price will be made with respect to rights, options or warrants issued pursuant to certain employee benefit plans or any dividend reinvestment plan. AIMCO from time to time may decrease the conversion price by any amount for any period of at least 20 days, so long as the decrease is irrevocable during such period, in which case AIMCO must give at least 15 days' prior notice of such decrease to holders of Class K Preferred Stock. In addition to the foregoing adjustments, AIMCO is permitted to make such reductions in the conversion price as it determines to be advisable in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities or distribution of securities convertible into or exchangeable for stock made by AIMCO to its stockholders will not be taxable to the recipients. Holders of shares of Class K Preferred Stock have no voting rights, except that if distributions on Class K Preferred Stock or any series or class of Class K Parity Stock are in arrears for six or more quarterly periods, the number of directors then constituting the AIMCO Board of Directors will be increased by two and the holders of shares of Class K Preferred Stock (voting together as a single class with all other shares of Class K Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class K Preferred Stock and of the Class K Parity Stock with similar voting rights called for that purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class K Preferred Stock will be required to amend the Charter in any manner that would materially adversely affect the rights of the holders of the Class K Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class K Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. There are ownership restrictions applicable to the Class K Preferred Stock that are similar to those for the Class B Preferred Stock. DESCRIPTION OF COMMON STOCK GENERAL The Charter authorizes the issuance of up to 510,750,000 shares of capital stock with a par value of $.01 per share, of which 484,021,750 shares were classified as Class A Common Stock as of February 28, 1999. As of February 28, 1999, there were 57,246,529 shares of Class A Common Stock issued and outstanding. In addition, up to 150,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's 1994 Stock Option Plan, up to 500,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's 1996 Stock Award and Incentive Plan, and up to 500,000 shares of Class A Common Stock have been reserved for issuance under AIMCO's Non-Qualified Stock Option Plan. Under AIMCO's 1997 Stock Award and Incentive Plan, AIMCO may issue up to 10% of the shares of Class A Common Stock outstanding as of the first day of the fiscal year during which any award is made, but in no event more than 20,000,000 shares of Class A Common Stock. The Class A Common Stock is traded on the NYSE under the symbol "AIV." BankBoston, N.A. serves as transfer agent and registrar of the Class A Common Stock. As of 45 51 February , 1999, the Charter authorized 750,000 shares of Class B Preferred Stock, all of which were issued and outstanding; 2,760,000 shares of Class C Preferred Stock, of which 2,400,000 shares were issued and outstanding; 4,600,000 shares of Class D Preferred Stock, of which 4,200,000 shares were issued and outstanding; 4,050,000 shares of Class G Preferred Stock, all of which shares were issued and outstanding; 2,300,000 shares of Class H Preferred Stock, of which 2,000,000 shares were issued and outstanding; 2,000,000 shares of Class J Preferred Stock of which 1,250,000 shares were issued and outstanding; and 5,750,000 shares of Class K Preferred Stock of which 5,000,000 shares were issued and outstanding. CLASS A COMMON STOCK Holders of the Class A Common Stock are entitled to receive dividends, when and as declared by the AIMCO Board, out of funds legally available therefor. The holders of shares of Class A Common Stock, upon any liquidation, dissolution or winding up of AIMCO, are entitled to receive ratably any assets remaining after payment in full of all liabilities of AIMCO and the liquidation preferences of preferred stock. The shares of Class A Common Stock possess ordinary voting rights for the election of Directors and in respect of other corporate matters, each share entitling the holder thereof to one vote. Holders of shares of Class A Common Stock do not have cumulative voting rights in the election of Directors, which means that holders of more than 50% of the shares of Class A Common Stock voting for the election of Directors can elect all of the Directors if they choose to do so and the holders of the remaining shares cannot elect any Directors. Holders of shares of Class A Common Stock do not have preemptive rights, which means they have no right to acquire any additional shares of Class A Common Stock that may be issued by AIMCO at a subsequent date. RESTRICTIONS ON TRANSFER For AIMCO to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year and the shares of capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Because the AIMCO Board believes that it is essential for AIMCO to continue to qualify as a REIT and to provide additional protection for AIMCO's stockholders in the event of certain transactions, the AIMCO Board has adopted, and the stockholders have approved, provisions of the Charter restricting the acquisition of shares of Common Stock. Subject to certain exceptions specified in the Charter, no holder may own, or be deemed to own by virtue of various attribution and constructive ownership provisions of the Internal Revenue Code and Rule 13d-3 under the Exchange Act, more than 8.7% (or 15% in the case of certain pension trusts described in the Internal Revenue Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the outstanding shares of Common Stock. For purposes of calculating the amount of stock owned by a given individual, the individual's Common Stock and Common OP Units are aggregated. The AIMCO Board of Directors may waive the Ownership Limit if evidence satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. However, in no event may such holder's direct or indirect ownership of Common Stock exceed 9.8% of the total outstanding shares of Common Stock. As a condition of such waiver, the AIMCO Board of Directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. The foregoing restrictions on transferability and ownership will not apply if the AIMCO Board of Directors determines that it is no longer in the best interests of AIMCO to attempt to qualify, or to continue to quality as a REIT and a resolution terminating AIMCO's status as a REIT and amending the Charter to remove the foregoing restrictions is duly adopted by the AIMCO Board of Directors and a majority of AIMCO's stockholders. If shares of Common Stock in excess of the Ownership Limit, or shares of Common Stock which would cause the REIT to be beneficially owned by fewer than 100 persons, or which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Internal Revenue Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer shall be null and void to the intended transferee, and the intended transferee would acquire no rights to the stock. Shares of Common 46 52 Stock transferred in excess of the Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the stock on the date that AIMCO determines to purchase the stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO Board of Directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Common Stock bear a legend referring to the restrictions described above. All persons who own, directly or by virtue of the attribution provisions of the Internal Revenue Code and Rule 13d-3 under the Securities Exchange Act of 1934, more than a specified percentage of the outstanding shares of Common Stock must file a written statement or an affidavit with AIMCO containing the information specified in the Charter within 30 days after January 1 of each year. In addition, each stockholder shall upon demand be required to disclose to AIMCO in writing such information with respect to the direct, indirect and constructive ownership of shares as the AIMCO Board deems necessary to comply with the provisions of the Internal Revenue Code applicable to a REIT or to comply with the requirements of any taxing authority or governmental agency. The ownership limitations may have the effect of precluding acquisition of control of AIMCO by a third party unless the AIMCO Board of Directors determines that maintenance of REIT status is no longer in the best interests of AIMCO. BUSINESS COMBINATIONS Under the MGCL, certain "business combinations" (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an "Interested Stockholder") or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Stockholder became an Interested Stockholder. Thereafter, any such business combination must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of the corporation, voting together as a single voting group, and (b) two-thirds of the votes entitled to be cast by holders of outstanding voting shares of the corporation other than shares held by the Interested Stockholder or an affiliate of the Interested Stockholder with whom the business combination is to be effected, unless, among other conditions, the corporation's stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. For purposes of determining whether a person is an Interested Stockholder, ownership of Common OP Units will be treated as beneficial ownership of the shares of Common Stock for which the Common OP Units may be redeemed. The business combination statute could have the effect of discouraging offers to acquire AIMCO and of increasing the difficulty of consummating any such offer. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder. The AIMCO Board has not passed such a resolution. 47 53 CONTROL SHARE ACQUISITIONS The MGCL provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror or by officers or directors who are employees of the corporation. "Control shares" are voting shares of stock that, if aggregated with all other shares of stock previously acquired by that person, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority or (iii) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the corporation's board of directors to call a special meeting of stockholders, to be held within 50 days of demand, to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an "acquiring person statement" as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights, as of the date of the last control share acquisition or of any meeting of stockholders at which the voting rights of such shares were considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of the appraisal rights may not be less than the highest price per share paid in the control share acquisition, and certain limitations and restrictions otherwise applicable to the exercise of dissenters' rights do not apply in the context of a control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisitions approved or exempted by the corporation's articles of incorporation or bylaws prior to the control share acquisition. No such exemption appears in the Charter or in AIMCO's bylaws (the "Bylaws"). The control share acquisition statute could have the effect of discouraging offers to acquire AIMCO and of increasing the difficulty of consummating any such offer. DESCRIPTION OF OP UNITS The following description sets forth certain general terms and provisions of the OP Units and the AIMCO Operating Partnership Agreement. The AIMCO Operating Partnership Agreement (excluding the amendments and exhibits thereto, all of which are available upon request to AIMCO) is included as Appendix B hereto, and this description is qualified in its entirety by the terms thereof. GENERAL The AIMCO Operating Partnership is a limited partnership organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act (as amended from time to time, or any successor to such statute, the "Delaware LP Act") and upon the terms and subject to the conditions set forth in the AIMCO Operating Partnership Agreement. AIMCO GP, a Delaware corporation and a wholly owned subsidiary of AIMCO, is the sole general partner of the AIMCO Operating Partnership. Another wholly owned subsidiary of AIMCO, the Special Limited Partner, is a limited partner in the AIMCO Operating Partnership. The term of the AIMCO Operating Partnership commenced on May 16, 1994, and will continue until December 31, 2093, unless the AIMCO Operating Partnership is dissolved sooner pursuant to the provisions of the AIMCO Operating Partnership Agreement or as otherwise provided by law. 48 54 PURPOSE AND BUSINESS The purpose and nature of the AIMCO Operating Partnership is to conduct any business, enterprise or activity permitted by or under the Delaware LP Act, including, but not limited to, (i) to conduct the business of ownership, construction, development and operation of multifamily rental apartment communities, (ii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Delaware LP Act, or to own interests in any entity engaged in any business permitted by or under the Delaware LP Act, (iii) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, subsidiaries, business trusts, limited liability companies or other similar arrangements, and (iv) to do anything necessary or incidental to the foregoing; provided, however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit AIMCO, in the sole and absolute discretion of the AIMCO GP, at all times to be classified as a REIT. MANAGEMENT BY THE AIMCO GP Except as otherwise expressly provided in the AIMCO Operating Partnership Agreement, all management powers over the business and affairs of the AIMCO Operating Partnership are exclusively vested in the AIMCO GP. None of the limited partners of the AIMCO Operating Partnership or any other person to whom one or more OP Units have been transferred (each, an "Assignee") will take part in the operations, management or control (within the meaning of the Delaware LP Act) of the AIMCO Operating Partnership's business, transact any business in the AIMCO Operating Partnership's name or have the power to sign documents for or otherwise bind the AIMCO Operating Partnership. The AIMCO GP may not be removed by the partners with or without cause, except with the consent of the AIMCO GP. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the AIMCO GP under any other provision of the AIMCO Operating Partnership Agreement, the AIMCO GP, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of properties) upon such terms as the AIMCO GP determines to be appropriate. The AIMCO GP is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the partners. Restrictions on AIMCO GP's Authority. The AIMCO GP may not take any action in contravention of the AIMCO Operating Partnership Agreement. The AIMCO GP may not, without the prior consent of the limited partners, undertake, on behalf of the AIMCO Operating Partnership, any of the following actions or enter into any transaction that would have the effect of such transactions: (i) except as provided in the AIMCO Operating Partnership Agreement, amend, modify or terminate the AIMCO Operating Partnership Agreement other than to reflect the admission, substitution, termination or withdrawal of partners; (ii) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the AIMCO Operating Partnership; (iii) institute any proceeding for bankruptcy on behalf of the AIMCO Operating Partnership; or (iv) subject to certain exceptions, approve or acquiesce to the transfer of the AIMCO Operating Partnership interest of the AIMCO GP, or admit into the AIMCO Operating Partnership any additional or successor general partners of the AIMCO Operating Partnership. Issuance of Additional OP Limited Partnership Interests. The AIMCO GP is authorized to admit additional limited partners to the AIMCO Operating Partnership from time to time, on terms and conditions and for such capital contributions as may be established by the AIMCO GP in its reasonable discretion. The net capital contribution need not be equal for all partners. No action or consent by the limited partners is required in connection with the admission of any additional limited partner. The AIMCO GP is expressly authorized to cause the AIMCO Operating Partnership to issue additional interests (i) upon the conversion, redemption or exchange of any debt, OP Units or other securities issued by the AIMCO Operating 49 55 Partnership, (ii) for less than fair market value, so long as the AIMCO GP concludes in good faith that such issuance is in the best interests of the AIMCO GP and the AIMCO Operating Partnership, and (iii) in connection with any merger of any other entity into the AIMCO Operating Partnership if the applicable merger agreement provides that persons are to receive interests in the AIMCO Operating Partnership in exchange for their interests in the entity merging into the AIMCO Operating Partnership. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the AIMCO GP, in its sole and absolute discretion without the approval of any limited partners, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement. Without limiting the generality of the foregoing, the AIMCO GP shall have authority to specify (a) the allocations of items of partnership income, gain, loss, deduction and credit to each such class or series of partnership interests; (b) the right of each such class or series of partnership interests to share in distributions by the AIMCO Operating Partnership; (c) the rights of each such class or series of partnership interests upon dissolution and liquidation of the AIMCO Operating Partnership; (d) the voting rights, if any, of each such class or series of partnership interests; and (e) the conversion, redemption or exchange rights applicable to each such class or series of partnership interests. Interests in the AIMCO Operating Partnership that have distribution rights, or rights upon liquidation, winding up or dissolution, that are superior or prior to the Common OP Units are Preferred OP Units. No person will be admitted as an additional limited partner without the consent of the AIMCO GP, which consent may be given or withheld in the AIMCO GP's sole and absolute discretion. MANAGEMENT LIABILITY AND INDEMNIFICATION Notwithstanding anything to the contrary set forth in the AIMCO Operating Partnership Agreement, the AIMCO GP is not liable to the AIMCO Operating Partnership for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law of any act or omission if the AIMCO GP acted in good faith. The AIMCO Operating Partnership Agreement provides for indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the AIMCO GP, any officer or director of AIMCO GP or the AIMCO Operating Partnership and such other persons as the AIMCO GP may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware LP Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the SEC that indemnification of directors and officers for liabilities arising under the Securities Act of 1933 is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933. COMPENSATION AND FEES The AIMCO GP does not receive compensation for its services as general partner of the AIMCO Operating Partnership. However, the AIMCO GP is entitled to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Partnership is responsible for all expenses incurred relating to the AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the AIMCO GP for such expenses paid by the AIMCO GP. The employees of the AIMCO Operating Partnership receive compensation for their services. FIDUCIARY RESPONSIBILITIES The directors and officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary duties to manage the AIMCO Operating Partnership in a manner beneficial 50 56 to the AIMCO Operating Partnership and its partners. The duties of the AIMCO GP, as general partner, to the AIMCO Operating Partnership and its partners, therefore, may come into conflict with the duties of the directors and officers of the AIMCO GP to its sole stockholder, AIMCO. Unless otherwise provided for in the relevant partnership agreement, Delaware law generally requires a general partner of a Delaware limited partnership to adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The AIMCO Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into, on behalf of the AIMCO Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The latitude given in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving conflicts of interest may significantly limit the ability of a limited partner to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP believes, however, that such latitude is necessary and appropriate to enable it to serve as the general partner of the AIMCO Operating Partnership without undue risk of liability. The AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the AIMCO GP or such director or officer acted in good faith. In addition, the AIMCO Operating Partnership is required to indemnify the AIMCO GP, its affiliates and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law, against any and all losses, claims, damages, liabilities, joint or several, expenses, judgments, fines and other actions incurred by the AIMCO GP or such other persons, provided that the AIMCO Operating Partnership will not indemnify for (i) willful misconduct or a knowing violation of the law or (ii) for any transaction for which such person received an improper personal benefit in violation or breach of any provision of the AIMCO Operating Partnership Agreement. The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and the AIMCO GP has not obtained an opinion of counsel covering the provisions set forth in the AIMCO Operating Partnership Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP that would be in effect under common law were it not for the AIMCO Operating Partnership Agreement. See "Risk Factors -- Risks Associated With an Investment in OP Units -- Conflicts of Interest and Fiduciary Responsibility." CLASS B PARTNERSHIP PREFERRED UNITS On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of Class B Preferred Stock, the AIMCO Operating Partnership issued 750,000 Class B Partnership Preferred Units to the Special Limited Partner. The terms of the Class B Partnership Preferred Units are substantially the same as the terms of the Class B Preferred Stock. The Class B Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $1.78125 per unit or, if greater, the distributions then payable on Common OP Units into which such Class B Partnership Preferred Units are convertible. On or after August 4, 1998, upon the conversion of Class B Preferred Stock into Class A Common Stock, a number of Class B Partnership Preferred Units equal to the number of shares of Class B Preferred Stock so converted will be converted into Common OP Units. The number of Common OP Units issued upon conversion of Class B Partnership Preferred Units is determined by dividing the Class B Partnership Preferred Unit's liquidation preference of $100 per unit by $30.45. In addition, each Class B Partnership Preferred Unit has a priority in liquidation equal to $100 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class B Preferred Stock. 51 57 CLASS C PARTNERSHIP PREFERRED UNITS On December 23, 1997, in connection with AIMCO's issuance of 2,400,000 shares of Class C Preferred Stock, the AIMCO Operating Partnership issued 2,400,000 Class C Partnership Preferred Units to the Special Limited Partner. The terms of the Class C Partnership Preferred Units are substantially the same as the terms of the Class C Preferred Stock. The Class C Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.5625 per unit ($2.25 per annum). In addition, each Class C Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class C Preferred Stock. CLASS D PARTNERSHIP PREFERRED UNITS On February 19, 1998, in connection with AIMCO's issuance of 4,200,000 shares of Class D Preferred Stock, the AIMCO Operating Partnership issued 4,200,000 Class D Partnership Preferred Units to the Special Limited Partner. The terms of the Class D Partnership Preferred Units are substantially the same as the terms of the Class D Preferred Stock. The Class D Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.546875 ($2.1875 per annum). In addition, each Class D Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class D Preferred Stock. CLASS E PARTNERSHIP PREFERRED UNITS In connection with the Insignia Merger, AIMCO issued 8.4 million shares of Class E Preferred Stock and reserved an additional 0.5 million shares for options and warrants, in the aggregate. AIMCO contributed assets formerly held by Insignia to the AIMCO Operating Partnership in exchange for Class E Partnership Preferred Units issued to the Special Limited Partner. In accordance with their terms, on January 15, 1999, each of the Class E Partnership Preferred Units automatically converted into an equal number of Common OP Units. CLASS F PARTNERSHIP PREFERRED UNITS In connection with the Insignia Merger, AIMCO has assumed Insignia's obligations under its 6 1/2% Convertible Subordinated Debentures due 2016 (the "Convertible Debentures"), and the AIMCO Operating Partnership has issued Class F Partnership Preferred Units to the Special Limited Partner that are economically equivalent to the Convertible Debentures. The Convertible Debentures bear interest at the rate of 6 1/2% per annum and are convertible into shares of AIMCO Class E Preferred Stock at a price of $57.21. After the conversion of Class E Preferred Stock into Class A Common Stock, the Convertible Debentures will be convertible into shares of Class A Common Stock at a conversion price that is adjusted for the $50 million dividend paid on the Class E Preferred Stock. The Class F Partnership Preferred Units have a liquidation value of $50 per Class F Partnership Preferred Unit, plus an amount per Class F Partnership Unit equal to all accrued and unpaid interest on Convertible Debentures in a principal amount of $50 to the date of final distribution to holders of Class F Partnership Preferred Units (but such holders would not be entitled to any further payment). Holders of Class F Partnership Preferred Units are entitled to receive, on any date on which payments of interest or principal are made on Convertible Debentures, distributions payable in cash in an amount per Class F Partnership Preferred Unit equal to the interest and principal payment made in respect of Convertible Debentures in a principal amount of $50 on such distribution date. Class F Partnership Preferred Units are redeemable by the AIMCO Operating Partnership at any time that AIMCO redeems all or any of the Convertible Debentures, in number equal to the quotient obtained by dividing the aggregate principal amount of Convertible Debentures so redeemed by $50, at a price per Class F Partnership Preferred Unit equal to the price paid by AIMCO to redeem Convertible Debentures in a principal amount of $50. Upon any conversion of Convertible Debentures into shares of AIMCO Class E Preferred Stock or Class A Common Stock, a number of Class F Partnership Preferred Units equal to the quotient obtained by dividing the aggregate principal amount of Convertible Debentures so converted by $50 will be converted into Class E Partnership Preferred Units or Partnership Common Units, respectively. The conversion ratio in effect from time to time for such conversion of Class F Partnership Preferred Units into Class E Partnership Preferred 52 58 Units or Partnership Common Units will be equal to, and automatically adjusted to reflect, the conversion ratio in effect from time to time for the conversion of Convertible Debentures in a principal amount equal to $50 into shares of AIMCO's Class E Preferred Stock or Class A Common Stock, as the case may be. The Class F Partnership Preferred Units may be owned and held solely by AIMCO GP or the Special Limited Partner. CLASS G PARTNERSHIP PREFERRED UNITS On July 15, 1998, in connection with AIMCO's issuance of 4,050,000 shares of Class G Preferred Stock, the AIMCO Operating Partnership issued 4,050,000 Class G Partnership Preferred Units to the Special Limited Partner. The terms of the Class G Partnership Preferred Units are substantially the same as the terms of the Class G Preferred Stock. The Class G Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.5859375 ($2.34375 per annum). In addition, each Class G Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class G Preferred Stock. CLASS H PARTNERSHIP PREFERRED UNITS On August 11, 1998, in connection with AIMCO's issuance of 2,000,000 shares of Class H Preferred Stock, the AIMCO Operating Partnership issued 2,000,000 Class H Partnership Preferred Units to the Special Limited Partner. The terms of the Class H Partnership Preferred Units are substantially the same as the terms of the Class H Preferred Stock. The Class H Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of $0.59375 ($2.375 per annum). In addition, each Class H Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class H Preferred Stock. CLASS J PARTNERSHIP PREFERRED UNITS On November 6, 1998, in connection with AIMCO's issuance of 1,250,000 shares of Class J Preferred Stock, the AIMCO Operating Partnership issued 1,250,000 Class J Partnership Preferred Units to the Special Limited Partner. The terms of the Class J Partnership Preferred Units are substantially the same as the terms of the Class J Preferred Stock. The Class J Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly cash distributions of (i) $1.75 from November 6 through November 15, 1998, (ii) $2.00 from November 15, 1998 through November 15, 1999, (iii) $2.25 from November 15, 1999 through November 15, 2000 and (iv) $2.38 thereafter. Each Class J Partnership Preferred Unit has a priority in liquidation equal to $100 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class J Preferred Stock. CLASS K PARTNERSHIP PREFERRED UNITS On February 18, 1999, in connection with AIMCO's issuance of 5,000,000 shares of Class K Preferred Stock, the AIMCO Operating Partnership issued 5,000,000 Class K Partnership Preferred Units to the Special Limited Partner. The terms of the Class K Partnership Preferred Units are substantially the same as the terms of the Class K Preferred Stock. The Class K Partnership Preferred Units entitle the Special Limited Partner to receive preferred quarterly distributions per unit equal to (i) for three years from the date of original issuance, the greater of $0.50 or the quarterly cash distribution paid or payable on the number of Common OP Units into which one Class K Partnership Preferred Unit is convertible, and (ii) thereafter, the greater of $0.625 or the quarterly cash distribution paid or payable on the number of Common OP Units into which one Class K Partnership Preferred Unit is convertible. In addition, each Class K Partnership Preferred Unit has a priority in liquidation equal to $25 per unit plus an amount equal to the accumulated, accrued and unpaid dividends on a share of Class K Preferred Stock. Upon conversion of any shares of Class K Preferred Stock into Class A Common Stock, an equal number of Class K Partnership Preferred Units will be converted into Common OP Units at a conversion ratio of 0.59524 Partnership Common Units for each Class K Partnership Preferred Unit. 53 59 CLASS ONE PARTNERSHIP PREFERRED UNITS On December 30, 1998, the AIMCO Operating Partnership, in connection with the acquisition of an apartment complex, issued 90,000 Class One Partnership Preferred Units. The Class One Partnership Preferred Units rank, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership: (i) prior or senior to Partnership Common Units (the "Common Units"), Class B Partnership Preferred Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units, Class E Partnership Preferred Units, Class G Partnership Preferred Units, Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the High Performance Units and any other interest in the AIMCO Operating Partnership if the holders of the Class One Partnership Preferred Units are entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest; (ii) on a parity with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Class One Partnership Preferred Units are entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other; and (iii) junior to any other interest in the AIMCO Operating Partnership if the holders of such interest are entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class One Partnership Preferred Units. Holders of Class One Partnership Preferred Units are entitled to receive, when and as declared by the Board of Directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $2 per Class One Partnership Preferred Unit. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and will be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day), commencing on the first such date occurring after the date of original issue. Distributions will be payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or November 1, as the case may be, immediately preceding each distribution date. Holders of Class One Partnership Preferred Units are not be entitled to receive any distributions in excess of cumulative distributions on the Class One Partnership Preferred Units. Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership will be made to or set apart for the holders of any junior units, to the extent possible, the holders of Class One Partnership Preferred Units will be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference per Class One Partnership Preferred Unit equal to the sum of (i) the quotient obtained by dividing $8 by the lesser of (a) the dividend yield on the AIMCO Class D Cumulative Preferred Stock as of the date of such liquidation, dissolution or winding up, or (b) the average of the dividend yields of the three specified preferred stocks plus (ii) accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders will not be entitled to any further payment or allocation. After a one-year holding period, a holder may redeem Class One Partnership Preferred Units and, in exchange therefor, the AIMCO Operating Partnership will deliver, or shall cause AIMCO to deliver, at its option, (i) cash in an amount equal to the number of redeemed Class One Partnership Preferred Units multiplied by the quotient obtained by dividing $8 by the lesser of (a) the dividend yield on the AIMCO Class D Cumulative Preferred Stock as of the date such Class One Partnership Preferred Units are tendered for redemption or (b) the average of the dividend yields of the three specified preferred stocks, or (ii) a number of shares of Class A Common Stock of AIMCO that is equal in value to the amount determined in (i). The holders of the Class One Partnership Preferred Units have the same voting rights as holders of Common OP Units. 54 60 HIGH PERFORMANCE UNITS In January 1998, the AIMCO Operating Partnership sold an aggregate of 15,000 High Performance Units to a joint venture formed by fourteen of AIMCO's officers and to three of AIMCO's independent directors, Messrs. Martin, Rhodes and Smith. Holders of High Performance Units have no rights to receive distributions or allocations of income or loss, or to redeem their High Performance Units prior to the Valuation Date that is the earlier of (i) January 1, 2001, or (ii) the date on which a change of control (as defined in the AIMCO Operating Partnership Agreement) occurs. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock during the Measurement Period exceeds the Minimum Return, then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon liquidation of the AIMCO Operating Partnership) as would holders of a number of Common OP Units equal to the quotient obtained by dividing (i) the product of (A) 15% of the amount by which the cumulative Total Return of the Class A Common Stock over the Measurement Period exceeds the greater of 115% of the peer group index or the Minimum Return, multiplied by (B) the weighted average market value of AIMCO's equity capitalization (including Class A Common Stock and Common OP Units) by (ii) the market value of one share of Class A Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative Total Return of the Class A Common Stock does not satisfy these criteria, then, on and after the Valuation Date, holders of the 15,000 High Performance Units will be entitled to receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times (subject to certain exceptions upon a liquidation of the AIMCO Operating Partnership) as would holders of 150 Common OP Units. For purposes of determining the market value of Class A Common Stock or Common OP Units as of any date, the average closing price of the Class A Common Stock for the 20 trading days immediately preceding such date is used. It is expected that the Morgan Stanley REIT Index, a capitalization-weighted index with dividends reinvested of the most actively traded REITs, will be used as the peer group index for purposes of the High Performance Units. Upon the occurrence of a change of control, any holder of High Performance Units may, subject to certain restrictions, require the AIMCO Operating Partnership to redeem all or a portion of the High Performance Units held by such party in exchange for (i) a cash payment per unit equal to the estimated proceeds that a holder of one unit would be entitled to receive in the event of a liquidation of the AIMCO Operating Partnership, or (ii) a number of shares of Class A Common Stock with a value equal to such cash payment. The AIMCO Operating Partnership may elect, in its sole discretion, to pay cash or direct AIMCO to issue shares to satisfy any such redemption. DISTRIBUTIONS Preferred OP Units. Holders of Preferred OP Units to be issued hereunder will have rights to distributions as set forth in the Prospectus Supplement. With respect to rights of holders of Class B Partnership Preferred Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units, Class F Partnership Preferred Units, Class G Partnership Preferred Units, Class H Partnership Preferred Units, Class J Partnership Preferred Units, Class K Partnership Preferred Units and Class One Partnership Preferred Units, see "-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units; - -- Class D Partnership Preferred Units; -- Class F Partnership Preferred Units; - -- Class G Partnership Preferred Units; -- Class H Partnership Preferred Units, - -- Class J Partnership Preferred Units, -- Class K Partnership Preferred Units and -- Class One Partnership Preferred Units." High Performance Units. On and after the Valuation Date, holders of High Performance Units may be entitled to receive distributions in accordance with the terms of the High Performance Units. See "-- High Performance Units." Common OP Units. Subject to the rights of holders of any outstanding Preferred OP Units, the AIMCO Operating Partnership Agreement requires the AIMCO GP to cause the AIMCO Operating Partnership to distribute quarterly all, or such portion as the AIMCO GP may in its sole and absolute discretion determine, of Available Cash (as defined in the AIMCO Operating Partnership Agreement) generated by the AIMCO 55 61 Operating Partnership during such quarter to the AIMCO GP, the Special Limited Partner and the holders of Common OP Units ("Common OP Unitholders") on the record date established by the AIMCO GP with respect to such quarter, in accordance with their respective interests in the AIMCO Operating Partnership on such record date. Holders of any other Preferred OP Units issued in the future may have priority over the AIMCO GP, the Special Limited Partner and holders of Common OP Units with respect to distributions of Available Cash, distributions upon liquidation or other distributions. Distributions payable with respect to any interest in the AIMCO Operating Partnership that was not outstanding during the entire quarterly period in respect of which any distribution is made will be prorated based on the portion of the period that such interest was outstanding. The AIMCO GP in its sole and absolute discretion may distribute to the OP Unitholders Available Cash on a more frequent basis and provide for an appropriate record date. The AIMCO Operating Partnership Agreement requires the AIMCO GP to take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership to distribute sufficient amounts to enable the AIMCO GP to transfer funds to AIMCO and enable AIMCO to pay stockholder dividends that will (i) satisfy the requirements (the "REIT Requirements") for qualifying as a REIT under the Internal Revenue Code, and the Treasury Regulations and (ii) avoid any federal income or excise tax liability of AIMCO. No Common OP Unitholder has any right to demand or receive property other than cash as provided in the AIMCO Operating Partnership Agreement. The AIMCO GP may determine, in its sole and absolute discretion, to make a distribution in kind of assets of the AIMCO Operating Partnership to the OP Unitholders, and such assets will be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with the AIMCO Operating Partnership Agreement. Subject to the rights of holders of any outstanding Preferred OP Units, net proceeds from the sale or other disposition of all or substantially all of the assets of the AIMCO Operating Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the AIMCO Operating Partnership (a "Terminating Capital Transaction"), and any other cash received or reductions in reserves made after commencement of the liquidation of the AIMCO Operating Partnership, will be distributed to the OP Unitholders in accordance with the AIMCO Operating Partnership Agreement. The AIMCO Operating Partnership Agreement prohibits the AIMCO Operating Partnership and the AIMCO GP, on behalf of the AIMCO Operating Partnership, from making a distribution to any OP Unitholder on account of its interest in OP Units if such distribution would violate Section 17-607 of the Delaware LP Act or other applicable law. ALLOCATIONS OF NET INCOME AND NET LOSS Preferred OP Units. With respect to the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class F Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units, the Class One Partnership Preferred Units and any similar class of Preferred OP Unit that may be subsequently issued, gross income and, if necessary, gain will be allocated to the holders of the Preferred OP Units for any fiscal year (and, if necessary, subsequent fiscal years) to the extent that the holders of the Preferred OP Units receive a distribution on any Preferred OP Units (other than an amount included in any redemption of Preferred OP Units). If any Preferred OP Units are redeemed, for the fiscal year that includes such redemption (and, if necessary, for subsequent fiscal years) (i) gross income and gain (in such relative proportions as the AIMCO GP in its discretion will determine) will be allocated to the holders of such class of Preferred OP Units to the extent that the redemption amounts paid or payable with respect to the Preferred OP Units so redeemed exceeds the aggregate capital contributions (net of liabilities assumed or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units so redeemed and (ii) deductions and losses (in such relative proportions as the AIMCO GP in its discretion will determine) will be allocated to the holders of such 56 62 class of Preferred OP Units to the extent that the aggregate Capital Contributions (net of liabilities assumed or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units so redeemed exceeds the redemption amount paid or payable with respect to the Preferred OP Units so redeemed. High Performance Units. On and after the Valuation Date, holders of High Performance Units may be allocated income and loss in accordance with the terms of the High Performance Units. See "-- High Performance Units." Common OP Units. Net Income (as defined in the AIMCO Operating Partnership Agreement) and Net Loss (as defined in the AIMCO Operating Partnership Agreement) of the AIMCO Operating Partnership will be determined and allocated with respect to each fiscal year of the AIMCO Operating Partnership as of the end of each such year. Except as otherwise provided in the AIMCO Operating Partnership Agreement, an allocation to a Common OP Unitholder of a share of Net Income or Net Loss will be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss. Except as otherwise provided in the AIMCO Operating Partnership Agreement and subject to the terms of any outstanding Partnership Preferred Units, Net Income and Net Loss will be allocated to the holders of Common OP Units in accordance with their respective Common OP Units at the end of each fiscal year. The AIMCO Operating Partnership Agreement contains provisions for special allocations intended to comply with certain regulatory requirements, including the requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Except as otherwise provided in the AIMCO Operating Partnership Agreement and subject to the terms of any outstanding Preferred OP Units, for income tax purposes under the Internal Revenue Code and the Treasury Regulations, each Partnership item of income, gain, loss and deduction will be allocated among the Common OP Unitholders in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to the AIMCO Operating Partnership Agreement. WITHHOLDING The AIMCO Operating Partnership is authorized to withhold from or pay on behalf of or with respect to each limited partner any amount of federal, state, local or foreign taxes that the AIMCO GP determines that the AIMCO Operating Partnership is required to withhold or pay with respect to any amount distributable or allocable to such limited partner pursuant to the AIMCO Operating Partnership Agreement. RETURN OF CAPITAL No limited partner is entitled to interest on its capital contribution or on such limited partner's capital account. Except (i) pursuant to the rights of redemption set forth in the AIMCO Operating Partnership Agreement, (ii) as provided by law, or (iii) pursuant to the terms of any outstanding Preferred OP Units, no limited partner has any right to demand or receive the withdrawal or return of its capital contribution from the AIMCO Operating Partnership, except to the extent of distributions made pursuant to the AIMCO Operating Partnership Agreement or upon termination of the AIMCO Operating Partnership. Except to the extent otherwise expressly provided in the AIMCO Operating Partnership Agreement and subject to the terms of any outstanding Preferred OP Units, no limited partner or assignee will have priority over any other limited partner or assignee either as to the return of capital contributions or as to profits, losses or distributions. REDEMPTION RIGHTS Preferred OP Units. Holders of Preferred OP Units to be issued hereunder will have rights to redemption as set forth in the applicable Prospectus Supplement. With respect to rights of holders of Class B Partnership Preferred Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units, Class F Partnership Preferred Units, Class G Partnership Preferred Units, Class H Partnership Preferred Units, Class J Partnership Preferred Units, Class K Partnership Preferred Units and Class One Partnership Preferred Units, see "-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units; - -- Class D Partnership Preferred Units; -- Class F Partnership Preferred Units; - -- Class G Partnership Preferred Units; 57 63 - -- Class H Partnership Preferred Units; -- Class J Partnership Preferred Units; - -- Class K Partnership Preferred Units; and Class One Partnership Preferred Units." High Performance Units. In the event of a change of control, holders of High Performance Units will have redemption rights similar to those of holders of Common OP Units. See "-- High Performance Units." Common OP Units. After the first anniversary of becoming a holder of Common OP Units, each Common OP Unitholder and certain assignees have the right, subject to the terms and conditions set forth in the AIMCO Operating Partnership Agreement, to require the AIMCO Operating Partnership to redeem all or a portion of the Common OP Units held by such party in exchange for shares of Class A Common Stock, on a one-for-one basis, or a cash amount equal to the value of such shares. On or before the close of business on the fifth business day after the AIMCO GP receives a notice of redemption, the AIMCO Operating Partnership may, in its sole and absolute discretion but subject to the restrictions on the ownership of Class A Common Stock imposed under the AIMCO Charter and the transfer restrictions and other limitations thereof, elect to cause AIMCO to acquire some or all of the tendered Common OP Units from the tendering party in exchange for Class A Common Stock, based on an exchange ratio of one share of Class A Common Stock for each Common OP Unit, subject to adjustment as provided in the AIMCO Operating Partnership Agreement. PARTNERSHIP RIGHT TO CALL COMMON OP UNITS Notwithstanding any other provision of the AIMCO Operating Partnership Agreement, on and after the date on which the aggregate percentage interests of the limited partners, other than the Special Limited Partner, are less than one percent (1%), the AIMCO Operating Partnership will have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding limited partner interests (other than the Special Limited Partner's interest) in the AIMCO Operating Partnership by treating any limited partner as if such limited partner had tendered for redemption pursuant to the AIMCO Operating Partnership Agreement the amount of Common OP Units specified by the AIMCO GP, in its sole and absolute discretion, by notice to the limited partner. TRANSFERS AND WITHDRAWALS Restrictions on Transfer. The AIMCO Operating Partnership Agreement restricts the transferability of OP Units. Any transfer or purported transfer of an OP Unit not made in accordance with the AIMCO Operating Partnership Agreement will be null and void ab initio. Until the expiration of one year from the date on which a limited partner acquired OP Units, subject to certain exceptions, such limited partner may not transfer all or any portion of its OP Units to any transferee without the consent of the AIMCO GP, which consent may be withheld in its sole and absolute discretion. After the expiration of one year from the date on which a limited partner acquired OP Units, such limited partner has the right to transfer all or any portion of its OP Units to any person, subject to the satisfaction of certain conditions specified in the AIMCO Operating Partnership Agreement, including the AIMCO GP's right of first refusal. It is a condition to any transfer (regardless of whether such transfer is effected before or after the one year holding period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor limited partner under the AIMCO Operating Partnership Agreement with respect to such OP Units, and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor partner are assumed by a successor corporation by operation of law) will relieve the transferor partner of its obligations under the AIMCO Operating Partnership Agreement without the approval of the AIMCO GP, in its sole and absolute discretion. In connection with any transfer of OP Units, the AIMCO GP will have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed transfer may be effected without registration under the Securities Act of 1933 and will not otherwise violate any federal or state securities laws or regulations applicable to the AIMCO Operating Partnership or the OP Units transferred. No transfer by a limited partner of its OP Units (including any redemption or any acquisition of OP Units by the AIMCO GP or by the AIMCO Operating Partnership) may be made to any person if (i) in the 58 64 opinion of legal counsel for the AIMCO Operating Partnership, it would result in the AIMCO Operating Partnership being treated as an association taxable as a corporation, or (ii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Internal Revenue Code. Substituted Limited Partners. No limited partner will have the right to substitute a transferee as a limited partner in its place. A transferee of the interest of a limited partner may be admitted as a substituted limited partner only with the consent of the AIMCO GP, which consent may be given or withheld by the AIMCO GP in its sole and absolute discretion. If the AIMCO GP, in its sole and absolute discretion, does not consent to the admission of any permitted transferee as a substituted limited partner, such transferee will be considered an assignee for purposes of the AIMCO Operating Partnership Agreement. An assignee will be entitled to all the rights of an assignee of a limited partnership interest under the Delaware LP Act, including the right to receive distributions from the AIMCO Operating Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the AIMCO Operating Partnership attributable to the OP Units assigned to such transferee and the rights to transfer the OP Units provided in the AIMCO Operating Partnership Agreement, but will not be deemed to be a limited partner for any other purpose under the AIMCO Operating Partnership Agreement, and will not be entitled to effect a consent or vote with respect to such OP Units on any matter presented to the limited partners for approval (such right to consent or vote, to the extent provided in this Agreement or under the Delaware LP Act, fully remaining with the transferor limited partner). Withdrawals. No limited partner may withdraw from the AIMCO Operating Partnership other than as a result of a permitted transfer of all of such limited partner's OP Units in accordance with the AIMCO Operating Partnership Agreement, with respect to which the transferee becomes a substituted limited partner, or pursuant to a redemption (or acquisition by AIMCO) of all of such limited partner's OP Units. Restrictions on the General Partner. The AIMCO GP may not transfer any of its general partner interest or withdraw from the AIMCO Operating Partnership unless (i) the limited partners consent or (ii) immediately after a merger of the AIMCO GP into another entity, substantially all of the assets of the surviving entity, other than the general partnership interest in the AIMCO Operating Partnership held by the AIMCO GP, are contributed to the AIMCO Operating Partnership as a capital contribution in exchange for OP Units. ISSUANCE OF CAPITAL STOCK BY AIMCO Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of its capital stock, AIMCO is generally obligated to contribute the cash proceeds or other consideration received from such issuance to the AIMCO Operating Partnership in exchange for, in the case of Class A Common Stock, Common OP Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Stock. DILUTION The AIMCO GP has the power, without the consent of the limited partners, to cause the AIMCO Operating Partnership to issue additional Common OP Units and Preferred OP Units. Any such issuance may dilute the interests of existing OP Unitholders. In addition, the terms of the Preferred OP Units entitle the holders thereof to receive preferential distributions of cash and a priority in liquidation, as well as certain class voting rights. AMENDMENT OF THE AIMCO OPERATING PARTNERSHIP AGREEMENT By the AIMCO GP Without the Consent of the Limited Partners. The AIMCO GP has the power, without the consent of the limited partners, to amend the AIMCO Operating Partnership Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the AIMCO GP or surrender any right or power granted to the AIMCO GP or any affiliate of the AIMCO GP for 59 65 the benefit of the limited partners; (2) to reflect the admission, substitution or withdrawal of partners or the termination of the AIMCO Operating Partnership in accordance with the AIMCO Operating Partnership Agreement; (3) to reflect a change that is of an inconsequential nature and does not adversely affect the limited partners in any material respect, or to cure any ambiguity, correct or supplement any provision in the AIMCO Operating Partnership Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under the AIMCO Operating Partnership Agreement that will not be inconsistent with law or with the provisions of the AIMCO Operating Partnership Agreement; (4) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (5) to reflect such changes as are reasonably necessary for AIMCO to maintain its status as a REIT; and (6) to modify the manner in which capital accounts are computed (but only to the extent set forth in the definition of "Capital Account" in the AIMCO Operating Partnership Agreement or contemplated by the Internal Revenue Code or the Treasury Regulations). With the Consent of the Limited Partners. With the exception of the circumstances described above whereby the AIMCO GP may, without the consent of the limited partners, amendments to the AIMCO Operating Partnership Agreement require the limited partners' consent. Amendments to the AIMCO Operating Partnership Agreement may be proposed by the AIMCO GP or by limited partners holding a majority of the outstanding Common OP Units, excluding the Special Limited Partner (a "Majority in Interest"). Following such proposal, the AIMCO GP will submit any proposed amendment to the limited partners. The AIMCO GP will seek the written consent of the limited partners on the proposed amendment or will call a meeting to vote thereon and to transact any other business that the AIMCO GP may deem appropriate. For purposes of obtaining a written consent, the AIMCO GP may require a written response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a consent that is consistent with the AIMCO GP's recommendation with respect to the proposal, provided, however, that an action shall become effective at such time as requisite consents are received even if prior to such specified time. PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS Meetings of the partners may be called by the AIMCO GP and will be called upon the receipt by the AIMCO GP of a written request by a Majority in Interest of the limited partners. Notice of any such meeting will be given to all partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Each meeting of partners will be conducted by the AIMCO GP or such other person as the AIMCO GP may appoint pursuant to such rules for the conduct of the meeting as the AIMCO GP or such other person deems appropriate in its sole and absolute discretion. Any action required or permitted to be taken at a meeting of the partners may be taken without a meeting if a written consent setting forth the action so taken is signed by partners holding a majority of outstanding Common OP Units (or such other percentage as is expressly required by the AIMCO Operating Partnership Agreement for the action in question). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of the partners holding a majority of outstanding Common OP Units (or such other percentage as is expressly required by the AIMCO Operating Partnership Agreement for the action in question). Such consent shall be filed with the AIMCO GP. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. RECORDS AND ACCOUNTING; FISCAL YEAR The AIMCO Operating Partnership Agreement requires the AIMCO GP to keep or cause to be kept at the principal office of the AIMCO Operating Partnership those records and documents required to be maintained by the Delaware LP Act and other books and records deemed by the AIMCO GP to be appropriate with respect to the AIMCO Operating Partnership's business. The books of the AIMCO Operating Partnership will be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the AIMCO GP determines to be necessary or appropriate. To the extent permitted by sound accounting practices and 60 66 principles, the AIMCO Operating Partnership, the AIMCO GP and AIMCO may operate with integrated or consolidated accounting records, operations and principles. The fiscal year of the AIMCO Operating Partnership is the calendar year. REPORTS As soon as practicable, but in no event later than one hundred five (105) days after the close of each calendar quarter and each fiscal year, the AIMCO GP will cause to be mailed to each limited partner, of record as of the last day of the calendar quarter or as of the close of the fiscal year, as the case may be, a report containing financial statements of the AIMCO Operating Partnership, or of AIMCO if such statements are prepared solely on a consolidated basis with AIMCO, for such calendar quarter or fiscal year, as the case may be, presented in accordance with generally accepted accounting principles, and such other information as may be required by applicable law or regulation or as the AIMCO GP determines to be appropriate. Statements included in quarterly reports are not audited. Statements included in annual reports are audited by a nationally recognized firm of independent public accountants selected by the AIMCO GP. TAX MATTERS The AIMCO GP is the "tax matters partner" of the AIMCO Operating Partnership for federal income tax purposes. The tax matters partner is authorized, but not required, to take certain actions on behalf of the AIMCO Operating Partnership with respect to tax matters. In addition, the AIMCO GP will arrange for the preparation and timely filing of all returns with respect to the AIMCO Operating Partnership's income, gains, deductions, losses and other items required of the AIMCO Operating Partnership for federal and state income tax purposes and will use all reasonable effort to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by limited partners for federal and state income tax reporting purposes. The limited partners will promptly provide the AIMCO GP with such information as may be reasonably requested by the AIMCO GP from time to time. DISSOLUTION AND WINDING UP Dissolution. The AIMCO Operating Partnership will dissolve, and its affairs will be wound up, upon the first to occur of any of the following (each a "Liquidating Event") (i) December 31, 2093; (ii) an event of withdrawal, as defined in the Delaware LP Act (including, without limitation, bankruptcy), of the sole general partner unless, within ninety (90) days after the withdrawal, a "majority in interest" (as such phrase is used in Section 17-801(3) of the Delaware LP Act) of the remaining partners agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment, effective as of the date of withdrawal, of a successor general partner; (iii) an election to dissolve the AIMCO Operating Partnership made by the general partner in its sole and absolute discretion, with or without the consent of the limited partners; (iv) entry of a decree of judicial dissolution of the AIMCO Operating Partnership pursuant to the provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or (vi) the redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special Limited Partner) of all Common OP Units other than Common OP Units held by the AIMCO GP or the Special Limited Partner. Winding Up. Upon the occurrence of a Liquidating Event, the AIMCO Operating Partnership will continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and partners. The AIMCO GP (or, in the event that there is no remaining AIMCO GP or the AIMCO GP has dissolved, become bankrupt within the meaning of the Delaware LP Act or ceased to operate, any person elected by a Majority in Interest of the limited partners) will be responsible for overseeing the winding up and dissolution of the AIMCO Operating Partnership and will take full account of the AIMCO Operating Partnership's liabilities and property, and the AIMCO Operating Partnership's property will be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the AIMCO GP, include Class A Common Stock) will be applied and distributed in the following order: (i) first, to the satisfaction of all of the AIMCO Operating Partnership's debts and liabilities to creditors other than the partners and their assignees (whether by payment 61 67 or the making of reasonable provision for payment thereof); (ii) second, to the satisfaction of all the AIMCO Operating Partnership's debts and liabilities to the general partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under the AIMCO Operating Partnership Agreement; (ii) third, to the satisfaction of all of the AIMCO Operating Partnership's debts and liabilities to the other partners and any assignees (whether by payment or the making of reasonable provision for payment thereof); (iv) fourth, to the satisfaction of all liquidation preferences of outstanding Preferred OP Units, if any, and (v) the balance, if any, to the AIMCO GP, the limited partners and any assignees in accordance with and in proportion to their positive capital account balances, after giving effect to all contributions, distributions and allocations for all periods. 62 68 COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO Generally, the nature of an investment in the Common OP Units is substantially equivalent economically to an investment in the Class A Common Stock. The AIMCO Operating Partnership makes quarterly distributions to holders of Common OP Units (on a per unit basis) that generally are equal to the dividends paid on the Class A Common Stock (on a per share basis). However, such distributions will not necessarily continue to be equal to such dividends. Common OP Unitholders generally share in the risks and rewards of ownership in the enterprise being conducted by AIMCO (through the AIMCO Operating Partnership). However, there are some differences between ownership of Common OP Units and ownership of Class A Common Stock, some of which may be material to investors. The information below highlights a number of the significant differences between the AIMCO Operating Partnership and AIMCO relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, investor rights and federal income taxation, and compares certain legal rights associated with the ownership of Common OP Units and Class A Common Stock, respectively. These comparisons are intended to assist OP Unitholders in understanding how their investment will be changed if their Common OP Units are exchanged for Class A Common Stock. COMMON OP UNITHOLDERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY. AIMCO OPERATING PARTNERSHIP AIMCO Form of Organization and Assets Owned The AIMCO Operating Partnership is organized AIMCO is a Maryland corporation. AIMCO has as a Delaware limited partnership. The AIMCO elected to be taxed as a REIT under the Operating Partnership owns interests (either Internal Revenue Code, commencing with its directly or through subsidiaries) in the taxable year ended December 31, 1994, and apartment properties. intends to maintain its election as a REIT. With certain limited exceptions, AIMCO's only significant assets are its equity interests in the AIMCO GP and the Special Limited Partner, which in turn collectively hold a controlling interest in the AIMCO Operating Partnership.
Duration of Existence The term of the AIMCO Operating Partnership AIMCO has a perpetual existence, unless continues until December 31, 2093, unless liquidated or dissolved. the AIMCO Operating Partnership is dissolved sooner pursuant to the terms of the AIMCO Operating Partnership Agreement or as provided by law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up."
Purpose and Permitted Activities/Investments The purpose of the AIMCO Operating Under its Charter, AIMCO may engage in any Partnership is to conduct any business that lawful activity permitted to be engaged in may be lawfully conducted by a limited by a Maryland corporation pursuant to partnership organized pursuant to the Maryland law. The Charter prohibits the Delaware LP Act, provided that such business AIMCO Board of Directors from taking any is to be conducted in a manner that permits action to terminate AIMCO's status as a AIMCO to be qualified as a REIT, unless REIT, unless the AIMCO Board of AIMCO
63 69 AIMCO OPERATING PARTNERSHIP AIMCO ceases to qualify as a REIT. The AIMCO Directors recommends such action and the Operating Partnership is authorized to holders of a majority of the shares entitled perform any and all acts for the furtherance to vote on such matter approve such action. of the purposes and business of the AIMCO The Internal Revenue Code defines a REIT as Operating Partnership, provided that the a corporation, trust or association (1) that AIMCO Operating Partnership may not take, or is managed by one or more trustees or refrain from taking, any action which, in directors; (2) the beneficial ownership of the judgment of the AIMCO GP could (i) which is evidenced by transferable shares, adversely affect the ability of AIMCO to or by transferable certificates of continue to qualify as a REIT, (ii) subject beneficial interest; (3) which would be AIMCO to certain income and excise taxes, or taxable as a domestic corporation, but for (iii) violate any law or regulation of any the special Internal Revenue Code provisions governmental body or agency (unless such ac- applicable to REITs; (4) that is neither a tion, or inaction, is specifically consented financial institution nor an insurance to by AIMCO). Subject to the foregoing, the company subject to certain provisions of the AIMCO Operating Partnership may invest in or Internal Revenue Code; (5) the beneficial enter into partnerships, joint ventures, or ownership of which is held by 100 or more similar arrangements persons; (6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities); and (7) which meets certain other tests described in this Prospectus (including with respect to the nature of its income and assets). See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. The Charter also contains certain restrictions regarding transfers of its shares, which provisions are intended to assist AIMCO in satisfying the share ownership requirements described in conditions (5) and (6) above. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." Substantially all of the operations of AIMCO are conducted through the AIMCO Operating Partnership and its subsidiaries. Through its controlling interests in the AIMCO Operating Partnership and other limited partnerships and limited liability com- panies, AIMCO owns and controls interests in numerous multi-family rental apartment properties.
Additional Equity The AIMCO GP is authorized to issue Under the Charter, the AIMCO Board of additional partnership interests in the Directors has the authority to classify and AIMCO Operating Partnership for any reclassify any of its unissued capital stock partnership purpose from time to time to the into shares of Preferred Stock by setting or limited partners and to other persons, and changing in any one or more respects the to admit such other persons as additional preferences, conversion or other rights, limited partners, on terms and conditions voting powers, restrictions, limitations as and for such capi- to dividends, qual-
64 70 AIMCO OPERATING PARTNERSHIP AIMCO tal contributions as may be established by ifications or terms or conditions of the AIMCO GP in its sole discretion. The net redemption of such shares of capital stock capital contribution need not be equal for including, but not limited to, ownership all partners. No action or consent by the restrictions consistent with the Ownership limited partners is required in connection Limit with respect to each series or class with the admission of any additional limited of capital stock, and the number of shares partner. See "Description of OP Units -- constituting each series or class, and to Management by the AIMCO GP." Subject to increase or decrease the number of shares of Delaware law, any additional partnership any such series or class, to the extent interests may be issued in one or more permitted by the MGCL. AIMCO is authorized classes, or one or more series of any of to issue, in its discretion, additional eq- such classes, with such designations, pref- uity securities including Class A Common erences and relative, participating, Stock or Preferred Stock; provided, however, optional or other special rights, powers and that the total number of equity securities duties as shall be determined by the AIMCO outstanding may not exceed the total number GP, in its sole and absolute discretion of authorized shares set forth in the without the approval of any limited part- Charter (i.e., not more than 510,750,000 ner, and set forth in a written document shares of capital stock). Additionally, thereafter attached to and made an exhibit AIMCO may issue additional Class A Common to the AIMCO Operating Partnership Stock upon exchange of Common OP Units for Agreement. Class A Common Stock, and upon exercise of options granted pursuant to AIMCO's stock incentive plan. Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of its capital stock, AIMCO is generally obligated to contribute the cash proceeds or other consideration received from such issuance to the AIMCO Operating Partnership in exchange for, in the case of Class A Common Stock, Common OP Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Stock. See "Description of OP Units -- Issuance of Class A Common Stock by AIMCO." Neither AIMCO's Charter nor its By-Laws impose any restrictions upon dealings between AIMCO and its directors, officers and affiliates. Under Maryland law, however, material facts of the relationship, the transaction and the conflict of interest must (i) be disclosed to the Board of Directors and approved by the affirmative vote of a majority of the disinterested directors; or (ii) be disclosed to the stockholders and approved by the affirmative vote of a majority of the disinterested stockholders or (iii) be in fact fair and reasonable. In addition, AIMCO has adopted certain policies designed to minimize or eliminate conflicts of interests between AIMCO and its executive officers and directors. Without the approval of a ma- jority of the disinterested directors, AIMCO will not (i) acquire from or sell to any director, officer or employee of AIMCO or any entity in which a director, officer or employee of AIMCO owns more
65 71 AIMCO OPERATING PARTNERSHIP AIMCO than a 1% interest, or acquire from or sell to any affiliate of any of the foregoing, any assets or other property of AIMCO, (ii) make any loan to or borrow from any of the foregoing persons, or (iii) engage in any material transaction with the foregoing. In addition, AIMCO has entered into employment agreements with certain officers and directors which include provisions intended to eliminate or minimize potential conflicts of interest. See "Business of the Company -- Policies of the Company with Respect to Certain Other Activities."
Borrowing Policies The AIMCO Operating Partnership Agreement AIMCO is not restricted under its Charter or contains no restrictions on borrowings, and Bylaws from incurring borrowings. the AIMCO GP has full power and authority to borrow money on behalf of the AIMCO Operating Partnership.
Review of Investor Lists Each limited partner has the right, upon Under Maryland law, a stockholder holding at written demand with a statement of the least 5% of the outstanding stock of a purpose of such demand and at such limited corporation may, upon written request, partner's own expense, to obtain a current inspect and copy during usual business hours list of the name and last known business, the list of the stockholders of such residence or mailing address of the AIMCO GP corporation. and each other partner.
Management Control All management powers over the business and The AIMCO Board of Directors has exclusive affairs of the AIMCO Operating Partnership control over AIMCO's business and affairs are vested in the AIMCO GP. No limited subject only to the restrictions in the partner has any right to participate in or Charter and the Bylaws. The policies adopted exercise control or management power over by the AIMCO Board of Directors may be the business and affairs of the AIMCO altered or eliminated without a vote of Operating Partnership. The limited partners AIMCO's stockholders. Accordingly, except have the right to vote on certain matters for their vote in the election of directors, described under "Voting Rights" below. The holders of Class A Common Stock have no AIMCO GP may not be removed by the limited control over the ordinary business policies partners with or without cause. of AIMCO.
Management Liability and Indemnification Notwithstanding anything to the contrary set The Charter limits the liability of AIMCO's forth in the AIMCO Operating Partnership directors and officers to AIMCO and its Agreement, the AIMCO GP is not liable to the stockholders to the fullest extent permitted AIMCO Operating Partnership for losses from time to time by Maryland law. Maryland sustained, liabilities incurred or benefits law presently permits the liability of not derived as a result of errors in judg- directors and officers to a corporation or ment or mistakes of fact or law of any act its stockholders for money damages to be or omission if the AIMCO GP acted in good limited, except (i) to the extent that it is faith. The AIMCO Operating Partnership proved that the director or officer actually Agreement provides for indemnification of received an improper benefit or profit in AIMCO, or any director or money, property or services actu-
66 72
AIMCO OPERATING PARTNERSHIP AIMCO officer of AIMCO (in its capacity as the ally received, or (ii) if a judgment or previous general partner of the AIMCO other final adjudication is entered in a Operating Partnership), the AIMCO GP, any proceeding based on a finding that the officer or director of AIMCO GP or the AIMCO director's or officer's action, or failure Operating Partnership and such other persons to act, was the result of active and as the AIMCO GP may designate from and deliberate dishonesty and was material to against all losses, claims, damages, the cause of action adjudicated in the liabilities, joint or several, expenses proceeding. This provision does not limit (including legal fees), fines, settlements the ability of AIMCO or its stockholders to and other amounts incurred in connection obtain other relief, such as an injunction with any actions relating to the operations or recision. of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership The Charter and Bylaws require AIMCO to Agreement. The Delaware LP Act provides that indemnify its directors, officers and subject to the standards and restrictions, certain other parties to the fullest extent if any, set forth in its partnership permitted from time to time by Maryland law. agreement, a limited partnership may, and The MGCL permits a corporation to indemnify shall have the power to, indemnify and hold its directors, officers and certain other harmless any partner or other person from parties against judgments, penalties, fines, and against any and all claims and demands settlements and reasonable expenses actually whatsoever. It is the position of the SEC incurred by them in connection with any that indemnification of directors and proceeding to which they may be made a party officers for liabilities arising under the by reason of their service to or at the Securities Act is against public policy and request of the corporation, unless it is is unenforceable pursuant to Section 14 of established that (i) the act or omission of the Securities Act of 1933. the indemnified party was material to the matter giving rise to the proceeding and (x) was committed in bad faith or (y) was the result of active and deliberate dishon- esty, (ii) the indemnified party actually received an improper personal benefit in money, property or services of (iii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Indemnification may be made against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with the proceeding; provided however, that if the proceeding is one by or in the right of the corporation, indemnification may not be made with respect to any proceeding in which the director or officer has been adjudged to be liable to the corporation. In addition, a director or officer may not be indemnified with respect to any proceeding charging improper personal benefit to the director or officer was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard or conduct required for indemnification to be permitted. It is the position of the SEC that indemnification of directors and officers for liabilities arising under the Securities Act of 1933 is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933.
67 73 AIMCO OPERATING PARTNERSHIP AIMCO AIMCO has entered into agreements with certain of its officers, pursuant to which AIMCO has agreed to indemnify such officers to the fullest extent permitted by applicable law.
Anti-Takeover Provisions Except in limited circumstances, the AIMCO The Charter and Bylaws of AIMCO contain a GP has exclusive management power over the number of provisions that may have the business and affairs of the AIMCO Operating effect of delaying or discouraging an Partnership. The AIMCO GP may not be removed unsolicited proposal for the acquisition of as general partner of the AIMCO Operating AIMCO or the removal of incumbent Partnership by the limited partners with or management. These provisions include, among without cause. Under the AIMCO Operating others: (1) authorized shares of stock that Partnership Agreement, the AIMCO GP, as a may be issued, in the discretion of the general partner, may, in its sole AIMCO Board of Directors, as Preferred Stock discretion, prevent a transferee of an OP with superior voting rights to the Class A Unit from becoming a substituted limited Common Stock; (2) a requirement that partner pursuant to the AIMCO Operating directors may be removed only for cause and Partnership Agreement. The AIMCO GP may by a vote of holders of at least two-thirds exercise this right of approval to deter, of the votes entitled to be cast in the delay or hamper attempts by persons to ac- election of directors; (3) advance notice quire a controlling interest in the AIMCO required in order to nominate persons for Operating Partnership. Additionally, the election to the AIMCO Board of Directors or AIMCO Operating Partnership Agreement to propose business to be considered by contains restrictions on the ability of stockholders at a stockholder's meeting; and limited partners to transfer their OP Units. (4) provisions designed to avoid See "Description of OP Units -- Transfers concentration of stock ownership in a manner and Withdrawals." that would jeopardize AIMCO's status as a REIT under the Internal Revenue Code. See "Description of Common Stock -- Restrictions on Transfer" and "Risk Factors --Ownership Limit." The MGCL contains provisions concerning certain "business combinations" and "control share acquisitions" (each as defined in the MGCL) that could have the effect of discouraging offers to acquire AIMCO and of increasing the difficulty of consummating any such offer. See "Description of Common Stock -- Business Combinations" and "Description of Common Stock -- Control Share Acquisitions."
Amendment of the Partnership Agreement or the Charter and Bylaws With the exception of certain circumstances AIMCO may amend, alter or repeal any set forth in the AIMCO Operating Partnership provision contained in its Charter upon (i) Agreement, whereby the AIMCO GP may, without adoption by the AIMCO Board of Directors of the consent of the limited partners, amend a resolution recommending such amendment, the AIMCO Operating Partnership Agreement, alteration, or repeal, (ii) presentation by amendments to the AIMCO Operating the AIMCO Board of Directors to the Partnership Agreement require the consent of stockholders of a resolution at an annual or the limited partners holding a majority of special meeting of the stockholders and the outstanding Common OP Units, excluding (iii) approval of such resolution by the the Special Limited Partner and certain affirmative vote of the holders of a other lim- majority (or, in certain cases,
68 74 AIMCO OPERATING PARTNERSHIP AIMCO ited exclusions (a "Majority in Interest"). two-thirds) of the aggregate number of votes Amendments to the AIMCO Operating entitled to be cast generally in the Partnership Agreement may be proposed by the election of directors. AIMCO GP or by holders of a Majority in Interest. Following such proposal, the AIMCO Under the MGCL, unless otherwise provided in GP will submit any proposed amendment to the a corporation's charter, a proposed charter limited partners. The AIMCO GP will seek the amendment requires an affirmative vote of written consent of the limited partners on two-thirds of the outstanding stock entitled the proposed amendment or will call a to be cast on the matter. However, the meeting to vote thereon. See "Description of Charter provides that it may be amended upon OP Units -- Amendment of the AIMCO Operating the affirmative vote of a majority (or, as Partnership Agreement." applicable, two-thirds) of the stock entitled to be cast generally in the election of directors ("voting stock"). Under the MGCL, the power to adopt, alter, and repeal the bylaws is vested in the stockholders, except to the extent that the charter or bylaws vest it in the board of directors. The Bylaws provide that they may be amended by vote of a majority of the AIMCO Board of Directors. An amendment to any provision of the Bylaws relating to their repeal or the removal of directors may be effected only by the vote of two-thirds of the voting stock.
Compensation and Fees The AIMCO GP does not receive compensation The employees, officers and directors of for its services as general partner of the AIMCO receive compensation for their AIMCO Operating Partnership. However, the services. AIMCO GP is entitled to payments, allocations and distributions in its capacity as general partner of the AIMCO Operating Partnership. In addition, the AIMCO Operating Partnership is responsible for all expenses incurred relating to the AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the AIMCO GP for such expenses paid by the AIMCO GP. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Except for fraud, willful misconduct or The MGCL provides that no stockholder of a gross negligence, no limited partner has corporation will be personally liable for personal liability for the AIMCO Operating any obligations of such corporation. Partnership's debts and obligations, and Generally the liability of stockholders for liability of the limited partners for the AIMCO's debts and obligations is limited to AIMCO Operating Partnership's debts and the amount of their investment in AIMCO. obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state
69 75 AIMCO OPERATING PARTNERSHIP AIMCO without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the limited partners holding OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a limited partner could be held liable under certain circumstances for the AIMCO Oper- ating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Unless otherwise provided for in the Under Maryland law, the members of the AIMCO relevant partnership agreement, Delaware law Board of Directors must perform their duties generally requires a general partner of a in good faith, in a manner that they Delaware limited partnership to adhere to reasonably believe to be in the best fiduciary duty standards under which it owes interests of AIMCO and with the care of an its limited partners the highest duties of ordinarily prudent person in a like good faith, fairness and loyalty and which position. Members of the AIMCO Board of generally prohibit such general partner from Directors who act in such a manner will taking any action or engaging in any generally not be liable to AIMCO for transaction as to which it has a conflict of monetary damages arising from their interest. The AIMCO Operating Partnership activities as members of the AIMCO Board of Agreement expressly authorizes the AIMCO GP Directors. to enter into, on behalf of the AIMCO Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP, in its sole and absolute discretion, believes are advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the AIMCO GP by providing that the AIMCO GP, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the AIMCO GP or such director or officer acted in good faith. See "Risk Factors -- Risks Associated With an Investment in OP Units -- Conflicts of Interest and Fiduciary Responsibility" and "Description of OP Units -- Fiduciary Responsibilities."
Federal Income Taxation The AIMCO Operating Partnership is not AIMCO has elected to be taxed as a REIT subject to federal income taxes. Instead, beginning with its fiscal year ended each OP Unitholder includes in income its December 31, 1994. So long as it qualifies allocable share of the AIMCO Operating as a REIT, AIMCO will be permitted to deduct Partnership's taxable income or loss when it distributions paid to its stockholders, determines its individual federal income tax which effectively will reduce the "double liability. taxation" that typically results when a corporation
70 76 AIMCO OPERATING PARTNERSHIP AIMCO earns income and distributes that income to its stockholders in the form of dividends. A qualified REIT, however, is subject to federal income tax on income that is not distributed and also may be subject to federal income and excise taxes in certain circumstances. The maximum federal income tax rate for corporations under current law is 35%, but in certain circumstances a REIT is subject to a 100% tax on certain kinds of income. Income and loss from the AIMCO Operating Dividends paid by AIMCO will be treated as Partnership may be subject to the passive "portfolio" income and cannot be offset with activity limitations. If an investment in an losses from "passive activities." OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the management companies or interest paid by the management companies does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Distributions by AIMCO to its taxable Partnership are not taxable to an OP domestic stockholders out of current or Unitholder except to the extent they exceed accumulated earnings and profits will be such Partner's basis in its interest in the taxed as ordinary income. Distributions that AIMCO Operating Partnership (which will are designated as capital gain dividends include such OP Unitholder's allocable share generally will be taxed as long-term capital of the AIMCO Operating Partnership's nonre- gain, subject to certain limitations. A course debt). distribution in excess of current or accumulated earnings and profits will be treated as a non-taxable return of basis to the extent of a stockholder's adjusted basis in its shares of stock of AIMCO with respect to which such distribution is received, with the excess, if any, taxed as capital gain. Each year, OP Unitholders receive a Schedule Each year, stockholders of AIMCO receive a K-1 tax form containing tax information for Form 1099 used by REITs to report dividends inclusion in preparing their federal income paid to their stockholders. tax returns. OP Unitholders are required, in some cases, Stockholders who are individuals generally to file state income tax returns and/or pay will not be required to file state income state income taxes in the states in which tax returns and/or pay state income taxes the AIMCO Operating Partnership owns outside of their states of residence solely property or transacts business, even if they as a result of the fact that AIMCO owns are not residents of those states. The AIMCO property or transacts business in various Operating Partnership may be required to pay jurisdictions. AIMCO may be required to pay state income taxes in certain states. state income taxes in various states.
71 77 COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK COMMON OP UNITS CLASS A COMMON STOCK Nature of Investment The Common OP Units constitute equity The Class A Common Stock constitute equity interests entitling each OP Unitholder to interests in AIMCO. Dividends are paid, when his or her pro rata share of cash and as declared by the AIMCO Board of distributions made from Available Cash (as Directors. In order to qualify as a REIT, such term is defined in the AIMCO Operating AIMCO is required to distribute dividends Partnership Agreement) to the partners of (other than capital gain dividends) to its the AIMCO Operating Partnership. stockholders in an amount at least equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed without regard to the dividends paid deduction and AIMCO's net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of noncash income.
Voting Rights Under the AIMCO Operating Partnership Agree- Each outstanding share of Class A Common ment, the limited partners have voting Stock entitles the holder thereof to one rights only with respect to certain limited vote on all matters submitted to matters such as certain amendments and stockholders for vote, including the termination of the AIMCO Operating election of directors. See "Description of Partnership Agreement and certain trans- Common Stock -- Class A Common Stock." actions such as the institution of Holders of Class A Common Stock have the bankruptcy proceedings, an assignment for right to vote on, among other things, a the benefit of creditors and certain merger of AIMCO, amendments to the Charter transfers by the AIMCO GP of its interest in and the dissolution of AIMCO. Certain the AIMCO Operating Partnership or the amendments to the Charter require the admission of a successor general partner. affirmative vote of not less than two-thirds of votes entitled to be cast on the matter. The Charter permits the AIMCO Board of Directors to classify and issue capital stock in one or more series having voting power which may differ from that of the Class A Common Stock. Under Maryland law, a consolidation, merger, share exchange or transfer of all or substantially all of the assets of AIMCO requires the affirmative vote of not less than two-thirds of all of the votes entitled to be cast on the matter. With respect to each of these transactions, only the holders of Class A Common Stock are entitled to vote on the matters. No approval of the stockholders is required for the sale of less than all or substantially all of AIMCO's assets. Maryland law provides that the AIMCO Board of Directors must obtain the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter in order to dissolve AIMCO. Only the holders of Class A Common Stock are entitled to vote on AIMCO's dissolution.
72 78 COMMON OP UNITS CLASS A COMMON STOCK Distributions Subject to the rights of holders of any Holders of the Class A Common Stock are outstanding Preferred OP Units, the AIMCO entitled to received dividends, when and as Operating Partnership Agreement requires the declared by the AIMCO Board of Directors, AIMCO GP to cause the AIMCO Operating out of funds legally available therefor. See Partnership to distribute quarterly all, or "Per Share and Per Unit Data." such portion as the AIMCO GP may in its sole and absolute discretion determine, of Holders of Class B Common Stock do not have Available Cash generated by the AIMCO dividend rights. A certain number of shares Operating Partnership during such quarter to of Class B Common Stock are eligible for the AIMCO GP, the Special Limited Partner conversion into an equal number of shares of and the holders of Common OP Units on the Class A Common Stock. Once Class B Common record date established by the AIMCO GP with Stock has been converted into Class A Common respect to such quarter, in accordance with Stock, holders of such shares of converted their respective interests in the AIMCO Class A Common Stock will have dividend Operating Partnership on such record date. rights of Class A Common Stock generally. Holders of any other Preferred OP Units See "Description of Common Stock -- Class B issued in the future may have priority over Common Stock." the AIMCO GP, the Special Limited Partner and holders of Common OP Units with respect AIMCO, in order to qualify as a REIT, is to distributions of Available Cash, required to distribute dividends (other than distributions upon liquidation or other capital gain dividends) to its stockholders distributions. See "Per Share and Per Unit in an amount at least equal to (A) the sum Data." of (i) 95% of AIMCO's "REIT taxable income" The AIMCO GP in its sole and absolute (computed without regard to the dividends discretion may distribute to the OP paid deduction and AIMCO's net capital gain) Unitholders Available Cash on a more and (ii) 95% of the net income (after tax), frequent basis and provide for an if any, from foreclosure property, minus (B) appropriate record date. The AIMCO Operating the sum of certain items of noncash income. Partnership Agreement requires the AIMCO GP See "Federal Income Taxation of AIMCO and to take such reasonable efforts, as AIMCO Stockholders -- General." determined by it in its sole and absolute discretion and consistent with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership to distribute suffi- cient amounts to enable the AIMCO GP to transfer funds to AIMCO and enable AIMCO to pay stockholder dividends that will (i) satisfy the requirements for qualifying as a REIT under the Code, and the Treasury Regulations and (ii) avoid any federal income or excise tax liability of AIMCO. See "Description of OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the OP Units The Class A Common Stock is transferable and the OP Units are not listed on any subject to the Ownership Limit set forth in securities exchange. the Charter. The Class A Common Stock is listed on the NYSE. Pursuant to the AIMCO Operating Partnership Agreement, until the expiration of one year from the date on which an OP Unitholder acquired OP Units, subject to certain exceptions, such OP Unitholder may not transfer all or any portion of its OP Units to any transferee without the consent of the AIMCO GP, which consent may be withheld in its sole and absolute discretion. After the expiration of
73 79 COMMON OP UNITS CLASS A COMMON STOCK one year, such OP Unitholder has the right to transfer all or any portion of its OP Units to any person, subject to the satisfaction of certain conditions specified in the AIMCO Operating Partnership Agreement, including the AIMCO GP's right of first refusal. See "Description of OP Units -- Transfers and Withdrawals." After the first anniversary of becoming a holder of Common OP Units, an OP Unitholder has the right, subject to the terms and conditions of the AIMCO Operating Partnership Agreement, to require the AIMCO Operating Partnership to redeem all or a portion of the Common OP Units held by such party in exchange for shares of Class A Common Stock or a cash amount equal to the value of such shares, as the AIMCO Operating Partnership may elect. See "Description of OP Units -- Redemption Rights." Upon receipt of a notice of redemption, the AIMCO Operating Partnership may, in its sole and absolute discretion but subject to the restrictions on the ownership of Class A Common Stock imposed under the AIMCO Charter and the transfer restrictions and other limitations thereof, elect to cause AIMCO to acquire some or all of the tendered Common OP Units in exchange for Class A Common Stock, based on an exchange ratio of one share of Class A Common Stock for each Common OP Unit, subject to adjustment as provided in the AIMCO Operating Partnership Agreement.
74 80 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE AIMCO OPERATING PARTNERSHIP OVERVIEW For purposes of this "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership," the AIMCO Operating Partnership, together with its subsidiaries, other controlled entities and entities in which it has a controlling financial interest, is referred to as the "Company". The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the audited financial statements of the AIMCO Operating Partnership included in this Prospectus. See "AIMCO Properties, L.P. -- Index to Financial Statements." RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 Net Income The Company recognized net income of $51.8 million for the nine months ended September 30, 1998, compared to $16.8 million for the nine months ended September 30, 1997. The increase in net income of $35.0 million, or 208%, was primarily the result of a significant increase in the number of owned properties and a significant increase in investments in unconsolidated subsidiaries and real estate partnerships during 1997 (the "1997 Acquisitions"), and the acquisition of Ambassador and the purchase of nineteen properties during the first nine months of 1998 (the "1998 Acquisitions"). The increase in net income was partially offset by the sale of five properties in 1997 (the "1997 Sold Properties") and two properties in 1998 (the "1998 Sold Properties"), increased real estate depreciation, increased goodwill amortization and increased interest expense associated with indebtedness which was assumed or incurred in connection with the acquisitions described above. These factors are discussed in more detail in the following paragraphs. Rental Property Operations Rental and other property revenues from the Owned Properties totaled $265.7 million for the nine months ended September 30, 1998, compared to $127.1 million for the nine months ended September 30, 1997, an increase of $138.6 million, or 109%. Rental and other property revenues consisted of the following (dollars in thousands):
NINE MONTHS ENDED NINE MONTHS ENDED SEPT. 30, 1998 SEPT. 30, 1997 ----------------- ----------------- "Same store" properties............................ $105,076 $100,670 1997 Acquisitions.................................. 101,034 15,299 1998 Acquisitions.................................. 53,314 -- 1997 Sold Properties............................... -- 2,491 1998 Sold Properties............................... 952 2,497 Properties in lease-up after the completion of an expansion or renovation.......................... 5,324 6,126 -------- -------- Total.................................... $265,700 $127,083 ======== ========
Property operating expenses, consisting of on-site payroll costs, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $101.6 million for the nine months ended September 30, 1998, compared to 75 81 $50.7 million for the nine months ended September 30, 1997, an increase of $50.9 million or 100%. Operating expenses consisted of the following (dollars in thousands):
NINE MONTHS ENDED NINE MONTHS ENDED SEPT. 30, 1998 SEPT. 30, 1997 ----------------- ----------------- "Same store" properties............................ $ 43,359 $44,887 1997 Acquisitions.................................. 39,420 1,486 1998 Acquisitions.................................. 16,381 -- 1997 Sold Properties............................... -- 1,154 1998 Sold Properties............................... 500 1,101 Properties in lease-up after the completion of an expansion or renovation.......................... 1,940 2,109 -------- ------- Total.................................... $101,600 $50,737 ======== =======
Owned property management expenses, representing the costs of managing the Owned Properties, totaled $7.7 million for the nine months ended September 30, 1998, compared to $4.3 million for the nine months ended September 30, 1997, an increase of $3.4 million, or 79%. The increase resulted from the acquisition of properties in 1997 and 1998. Service Company Business The Company's share of income from the service company business was $5.7 million for the nine months ended September 30, 1998, compared to $3.5 million for the nine months ended September 30, 1997. The increase in service company business income of $2.2 million was due to increased management and other fees from the acquisition of partnership interests and properties, and the acquisition of a captive insurance subsidiary in connection with the acquisition of the NHP Real Estate Companies in June 1997. General and Administrative Expenses General and administrative expenses increased from $1.4 million for the nine months ended September 30, 1997 to $7.4 million for the nine months ended September 30, 1998, a 429% increase. The increase is primarily due to additional corporate costs and additional employee salaries associated with the purchase of NHP Real Estate Companies in June 1997 and the merger with Ambassador in May 1998. In addition, due to the growth of the Company, several new departments have been added including legal, tax and tender coordination, as well as increased levels of personnel in the accounting and finance departments. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $56.8 million for the nine months ended September 30, 1998, compared to $33.4 million for the nine months ended September 30, 1997, an increase of $23.4 million, or 70%. The increase consists of the following (dollars in thousands): Interest expense on secured short-term and long-term indebtedness incurred in connection with the 1997 Acquisitions.............................................. $15,951 Interest expense on secured and unsecured short-term and long-term indebtedness incurred in connection with the 1998 Acquisitions......................................... 7,073 Increase in interest expense on the Company's other Indebtedness.............................................. 373 ------- Total increase.................................... $23,397 =======
Interest Income Interest income totaled $18.2 million for the nine months ended September 30, 1998, compared to $4.5 million for the nine months ended September 30, 1997. The increase of $13.8 million is primarily due to 76 82 interest earned on loans made by the Company to partnerships in which the Company acts as the general partner. Comparison of the Three Months Ended September 30, 1998 to the Three Months Ended September 30, 1997 The Company recognized net income of $16.6 million for the three months ended September 30, 1998, compared to $7.0 million for the three months ended September 30, 1997. The increase in net income of $9.6 million, or 137%, was primarily the result of the 1997 Acquisitions and the 1998 Acquisitions. The increase in net income was partially offset by the 1997 Sold Properties and the 1998 Sold Properties, increased real estate depreciation, increased goodwill amortization and increased interest expense associated with indebtedness which was assumed or incurred in connection with the acquisitions described above. These factors are discussed in more detail in the following paragraphs. Rental Property Operations Rental and other property revenues from the Owned Properties totaled $104.4 million for the three months ended September 30, 1998, compared to $47.4 million for the three months ended September 30, 1997, an increase of $57.0 million, or 120%. Rental and other property revenues consisted of the following (dollars in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED SEPT. 30, 1998 SEPT. 30, 1997 ------------------ ------------------ "Same store" properties......................... $ 35,302 $33,998 1997 Acquisitions............................... 33,341 9,292 1998 Acquisitions............................... 33,773 -- 1997 Sold Properties............................ -- 1,291 1998 Sold Properties............................ 202 839 Properties in lease-up after the completion of an expansion or renovation.................... 1,818 1,944 -------- ------- Total................................. $104,436 $47,364 ======== =======
Property operating expenses, consisting of on-site payroll costs, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $42.0 million for the three months ended September 30, 1998, compared to $19.5 million for the three months ended September 30, 1997, an increase of $22.5 million or 115%. Operating expenses consisted of the following (dollars in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED SEPT. 30, 1998 SEPT. 30, 1997 ------------------ ------------------ "Same store" properties......................... $15,305 $15,824 1997 Acquisitions............................... 13,979 2,043 1998 Acquisitions............................... 11,842 -- 1997 Sold Properties............................ -- 602 1998 Sold Properties............................ 126 401 Properties in lease-up after the completion of an expansion or renovation.................... 705 707 ------- ------- Total................................. $41,957 $19,577 ======= =======
Owned property management expenses, representing the costs of managing the Owned Properties, totaled $3.0 million for the three months ended September 30, 1998, compared to $1.6 million for the three months ended September 30, 1997, an increase of $1.4 million, or 88%. The increase resulted from the acquisition of properties in 1997 and 1998. 77 83 Service Company Business The Company's share of income from the service company business was $1.8 million for the three months ended September 30, 1998, compared to $1.0 million for the three months ended September 30, 1997. The increase in service company business income of $0.8 million was due to increased management and other expenses from the acquisition of partnership interests, and properties, and the acquisition of a captive insurance subsidiary in connection with the acquisition of the NHP Real Estate Companies in June 1997. General and Administrative Expenses General and administrative expenses increased from $0.6 million for the three months ended September 30, 1997 to $3.3 million for the three months ended September 30, 1998, a 450% increase. The increase is primarily due to additional corporate costs and additional employee salaries associated with the purchase of NHP Real Estate Companies in June 1997 and the merger with Ambassador in May 1998. In addition, due to the growth of the Company, several new departments have been added including legal, tax and tender coordination, as well as increased levels of personnel in the accounting and finance departments. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $22.0 million for the three months ended September 30, 1998, compared to $12.8 million for the three months ended September 30, 1997, an increase of $9.2 million, or 72%. The increase consists of the following (dollars in thousands): Interest expense on secured short-term and long-term indebtedness incurred in connection with the 1997 Acquisitions.............................................. $5,352 Interest expense on secured and unsecured short-term and long-term indebtedness incurred in connection with the 1998 Acquisitions......................................... 3,593 Increase in interest expense on the Company's other Indebtedness.............................................. 278 ------ Total increase.................................... $9,223 ======
Interest Income Interest income totaled $6.9 million for the three months ended September 30, 1998, compared to $3.1 million for the three months ended September 30, 1997. The increase of $3.8 million is primarily due to interest earned on loans made by the Company to partnerships in which the Company acts as the general partner. LIQUIDITY AND CAPITAL RESOURCES The Company expects to meet its short-term liquidity requirements, including property acquisitions, tender offers, refinancing of short-term debt, funds needed to purchase shares of Insignia under the Call Agreements, the merger with IPT and funds needed for the Special Dividend, with long-term, fixed rate, fully amortizing debt, secured or unsecured short-term indebtedness (including indebtedness under the BOA Credit Facility, the WMF Credit Facility and the Interim Term Loan Agreement), the issuance of debt securities, OP Units or equity securities in public offerings or private placements, and cash generated from operations. In April 1997, AIMCO filed a shelf registration statement with the SEC that registered $1.0 billion of securities for sale on a delayed or continuous basis. The shelf registration statement was declared effective in May 1997. As of September 30, 1998, the Company had issued common and preferred stock thereunder and received gross proceeds of approximately $731.8 million. At September 30, 1998, the Company had $43.7 million in cash and cash equivalents. In addition, the Company had $83.2 million of restricted cash primarily consisting of reserves and impounds held by lenders for capital expenditures, property taxes and insurance. The Company's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, acquisitions of or investments in properties, and distributions paid to the partners. The Company considers its cash provided by operating activities, and funds available under its credit facilities, to be adequate to meet 78 84 short-term liquidity demands. The Company utilizes its revolving credit facilities for general corporate purposes and to fund investments on an interim basis. On October 1, 1998, the Company amended and restated its credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement now provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million (the "BOA Credit Facility"). The Company had outstanding borrowings under the BOA Credit Facility of $50.8 million as of September 30, 1998 (See Note 9). In February 1998, the AIMCO Operating Partnership, as borrower, and AIMCO and certain single asset wholly owned subsidiaries of the AIMCO Operating Partnership (the "Owners"), as guarantors, entered into a five-year, $50 million secured revolving credit facility agreement (the "WMF Credit Facility") with Washington Mortgage Financial Group, Ltd. ("Washington Mortgage"), which provides for the conversion of all or a portion of such revolving credit facility to a term facility. The Company had outstanding borrowings under the WMF Credit Facility of $50.0 million as of September 30, 1998. In October 1998, the AIMCO Operating Partnership and AIMCO entered into a $300 million Interim Term Loan Agreement with an affiliate of Lehman Brothers, Inc. The term loan matures in one year and bears interest at a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. The Company is subject to certain customary restrictions, including compliance with financial and other covenants thereunder. The Company used the proceeds to refinance existing outstanding indebtedness of Insignia at the time of the merger. From time to time, the Company has offered to acquire and, in the future, may offer to acquire the interests held by third party investors in certain limited partnerships for which the Company acts as general partner. Any such acquisitions will require funds to pay the purchase price for such interests. Cash payments made in connection with such acquisitions totaled $27.0 million for the nine months ended September 30, 1998. In November 1998, the Company issued 1,000,000 shares of Class J Preferred Stock in a private placement for $100.0 million. AIMCO contributed the proceeds to the Partnership in exchange for 1,000,000 Class J Preferred Units. In addition, the Partnership purchased 250,000 shares of Class J Preferred Stock from AIMCO in exchange for a note payable of $25 million and issued an additional 250,000 Class J Preferred Units to AIMCO. The holders of Class J Preferred Stock shall be entitled to receive, when and as declared by the AIMCO board of directors, dividends equal to (i) 7% per annum of the per share Liquidation Preference for the period beginning on and including the Issue Date and lasting until November 15, 1998; (ii) 8% per annum of the per share Liquidation Preference for the period beginning on and including November 15, 1998 and lasting until November 15, 1999; (iii) 9% per annum of the per share Liquidation Preference for the period beginning on and including November 15, 1999 and lasting until November 15, 2000; (iv) 9.5% per annum of the per share Liquidation Preference thereafter. Such dividends shall be cumulative from the Issue Date, whether or not in any Dividend Period or Periods such dividend shall be declared or there shall be funds of the Company legally available for the payment of such dividends. AIMCO may convert any or all of the Class J Preferred Stock into Class A Common Stock at a conversion price of $40 (equivalent to a conversion rate of 2.5 shares of Class A Common Stock for each share of Class J Preferred Stock) (a) after November 6, 2002, if the market price of the Class A Common Stock in the five most recent Trading Days is equal to or greater than $40 or; (b) at any time on or prior to November 6, 2002, if the Internal Rate of Return exceeds 12.5%. CAPITAL EXPENDITURES The Company expects to incur initial capital expenditures (spending to increase a property's revenue potential including renovations, developments and expansions) of approximately $71.4 million during the year ended December 31, 1998 on all Owned and Equity Properties. For the nine months ended September 30, 1998, the Company has spent $33.0 million for capital replacements and initial capital expenditures. The Company reserves $300 per apartment unit per annum for capital replacements, which totaled $10.9 million 79 85 for the nine months ended September 30, 1998. Initial capital expenditures and capital enhancements will be funded with cash from operating activities and borrowings under the Company's revolving credit facilities. FUNDS FROM OPERATIONS The Company measures its economic profitability based on Funds From Operations ("FFO"). The Company's management believes that FFO provides investors with an understanding of the Company's ability to incur and service debt and make capital expenditures. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO in a manner based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash, deferred portion of the income tax provision for unconsolidated subsidiaries and less the payment of distributions on Preferred Units. FFO should not be considered as an alternative to net income or net cash flows from operating activities, as calculated in accordance with GAAP, as an indication of the Company's performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, there can be no assurance that the Company's basis for computing FFO is comparable with that of other real estate investment trusts. For the three and nine months ended September 30, 1998 and 1997, the Company's FFO was as follows (dollars in thousands):
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPT. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1997 -------------- -------------- -------------- -------------- OPERATING ACTIVITIES Net income........................ $17,745 $ 7,963 $ 56,269 $19,427 Extraordinary item -- early extinguishment of Debt.......... -- -- -- 269 (Gain) losses on disposition of properties...................... (257) 169 (2,783) 169 Real estate depreciation, net of minority Interest in other partnerships.................... 24,477 7,802 56,900 21,052 Amortization of goodwill.......... 2,350 237 7,077 711 Equity in earnings of other partnerships: Real estate depreciation........ 8,248 2,084 17,379 2,781 Equity in earnings of unconsolidated Subsidiaries: Real estate depreciation........ -- 1,426 -- 2,689 Deferred taxes.................. 1,843 1,290 6,134 2,164 Amortization of recoverable amount of Management contracts and goodwill........................ 1,113 280 4,201 430 Preferred Unit distributions...... (6,285) -- (12,296) -- Funds From Operations (FFO)....... $49,234 $21,251 $132,881 $49,692 ======= ======= ======== ======= Weighted average number of OP Units, OP Unit Equivalents, and Preferred Units convertible to OP Units........................ 55,986 29,679 53,007 24,347 ======= ======= ======== =======
80 86 For the nine months ended September 30, 1998 and 1997, net cash flows were as follows (dollars in thousands):
1998 1997 --------- --------- Cash flow provided by operating activities................ $ 50,825 $ 53,435 Cash flow used in investing activities.................... (185,453) (314,814) Cash flow provided by financing activities................ 141,221 293,984 ========= =========
CONTINGENCIES HUD Approvals and Enforcement A significant number of affordable units included in the AIMCO Properties are subject to regulation by the U.S. Department of Housing and Urban Development ("HUD"). Under its regulations, HUD reserves the right approve the owner and the manager of HUD-insured and HUD-assisted properties, as well as their "principals" (e.g., general partners, stockholders with a 10% or greater interest, officers and directors) in connection with the acquisition of a property or the award of a management contract. This approval process is commonly referred to as "2530 Clearance." HUD monitors the performance of properties with HUD-insured mortgage loans. HUD also monitors compliance with applicable regulations, and takes performance and compliance into account in approving the acquisition and management of additional HUD-assisted properties. In the event of instances of unsatisfactory performance or regulatory violations, the HUD office with jurisdiction over the applicable property has the authority to enter a "flag" into the computerized 2530 clearance system. If one or more flags have been entered, a decision whether to grant 2530 clearance is then subject to review by HUD's Multifamily Participation Review Committee in Washington, D.C. (the "2530 Committee"). As a result of certain mortgage defaults and unsatisfactory ratings received by NHP Incorporated (a company acquired by AIMCO in December 1997) ("NHP") in years prior, HUD believes that the 2530 Committee must review any application for 2530 clearance filed by the Company. As of September 30, 1998, one flag was in the 2530 system with respect to the Company in connection with a subpoena received by NHP in October 1997 from the Inspector General of HUD. The Inspector General's subpoena requested documents relating to any arrangement whereby NHP or any of its affiliates provides or has provided compensation to owners of HUD multifamily projects in exchange for or in connection with property management of a HUD project. The Company believes that other owners and managers of HUD projects have received similar subpoenas. Documents relating to certain of the Company's acquisitions of property management rights for HUD projects, may be responsive to the subpoena. The Company is in the process of complying with the subpoena and has provided certain documents to the Inspector General, without conceding that they are responsive to the subpoena. The Company believes that its operations are in compliance, in all material respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. Effective February 13, 1998, counsel for the Company and the U.S. Attorney for the Northern District of California entered into a tolling agreement related to certain civil claims the government may have against the Company. Although no action has been initiated against the Company or, to the Company's knowledge, any owner of a HUD property managed by the Company, if any such action is taken in the future, it could ultimately affect existing arrangements with respect to HUD projects or otherwise have a material adverse effect on the Company's results of operations. HUD also has the authority to suspend or deny property owners and managers from participation in HUD programs with respect to additional assistance within a geographic region through imposition of a Limited Denial of Participation ("LDP") by any HUD office or nationwide for violations of HUD regulatory requirements. In June 1997, the St. Louis HUD field office issued an LDP to NHP as a result of a physical inspection and mortgage default at one property owned and managed by NHP-related companies. Although the LDP expired by its terms in June 1998, the Company entered into a settlement agreement with HUD which includes aggregate payments to HUD of approximately $533,000 and resolution of all issues involving four properties in the St. Louis metropolitan area. Because an LDP is prospective, existing HUD agreements were not, and are not, affected. 81 87 The Company believes that the national office will continue to apply the clearance process to large management portfolios such as the Company's with discretion and flexibility. While there can be no assurance, the Company believes that the unsatisfactory reviews and the mortgage defaults will not have a material impact on its results of operations or financial condition. However, on September 29, 1998, the 2530 Committee deferred action on three of the Company's 2530 applications for up to 120 days pending receipt of further information regarding the HUD Inspector General's inquiry with AIMCO regarding past practices of NHP. If HUD were to disapprove the Company as property manager for one or more affordable properties, the Company's ability to obtain property management revenues from new affordable properties may be impaired. Possible Environmental Liabilities Under Federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate and clean up a release of hazardous substances at such property, and may, under such laws and common law, be held liable for property damage and other costs incurred by third parties in connection with such releases. The liability under certain of these laws has been interpreted to be joint and several unless the harm is divisible or there is a reasonable basis for allocation of responsibility. The failure to remediate the property properly may also adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. In connection with its ownership, operation or management of the AIMCO Properties, the Company could be potentially liable for environmental liabilities or costs associated with its properties or properties it may in the future acquire or manage. Certain Federal, state and local laws and regulations govern the removal, encapsulation or disturbance of asbestos-containing materials ("ACMs") when those materials are in poor condition or in the event of building remodeling, renovation or demolition; impose certain worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air. These laws also impose liability for a release of ACMs and may enable third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership, operation or management of properties, the Company could be potentially liable for those costs. There are ACMs at certain of the Owned Properties, and there may be ACMs at certain of the other AIMCO Properties. The Company has developed and implemented operations and maintenance programs, as appropriate, that establish operating procedures with respect to the ACMs at most of the Owned Properties, and intends to develop and implement, as appropriate, such programs at AIMCO Properties that do not have such programs. Certain of the Company's Owned Properties, and some of the other AIMCO Properties, are located on or near properties that contain or have contained underground storage tanks or on which activities have occurred which could have released hazardous substances into the soil or groundwater. There can be no assurances that such hazardous substances have not been released or have not migrated, or in the future will not be released or will not migrate, onto the AIMCO Properties. All of the Owned Properties were subject to Phase I or similar environmental audits by independent environmental consultants prior to acquisition. The audits did not reveal, nor is the Company aware of, any environmental liability relating to such properties that would have a material adverse effect on the Company's business, assets or results of operations. However, such audits involve a number of judgments and it is possible that such audits did not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. In addition, the Managed Properties may not have been subject to Phase I or similar environmental audits by independent environmental consultants. While the Company is not aware of any environmental liability that it believes would have a material adverse effect on its business, financial condition or results of operations relating to the Managed Properties, for which audits are not available, there can be no assurance that material environmental liabilities of which the Company is unaware do not exist at such properties. In October 1997, NHP received a letter ("the EPA Letter") from the U.S. Department of Justice ("DOJ") which stated that the U.S. Environmental Protections Agency ("EPA") has requested that the DOJ file a lawsuit against NHP alleging, among other things, that NHP violated the Clean Air Act, the National Recycling and Emissions Reduction Programs and associated regulations in connection with the 82 88 employment of certain unlicensed personnel, maintenance and disposal of certain refrigerants, and record-keeping practices at two properties. A settlement in principle between NHP and the EPA has been reached whereby NHP agreed to pay a fine of less than $100,000, permit the EPA to audit the maintenance records and technical staffing at 40 NHP properties and continue to provide training to all maintenance workers with respect to the disposal of refrigerants. A formal settlement agreement is expected to be executed in December 1998. It is possible that the future EPA audits agreed to in the settlement could result in additional allegations by EPA of violations at the properties audited. However, based on the terms of the settlement in principle with the EPA, the Company anticipates that the fines, if any, resulting from any such violations will be nominal. Uncertainties Regarding Status of Federal Subsidies The Company owns and/or manages approximately 52,000 units that are subsidized under Section 8 of the United States Housing Act of 1937, as amended ("Section 8"). These subsidies are generally provided pursuant to project-based Housing Assistance Payment Contracts ("HAP Contracts") between HUD and the owners of the properties or, with respect to a limited number of units managed by the Company, pursuant to vouchers received by tenants. On October 27, 1997, the President of the United States signed into law the Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act, the mortgage financing and HAP Contracts of certain properties assisted under Section 8, with rents above market levels and financed with HUD-insured mortgage loans, will be restructured by reducing subsidized rents to market levels, thereby reducing subsidy levels, and lowering required debt service payments as needed to ensure financial viability at the reduced rents and subsidy levels. The 1997 Housing Act retains project-based subsidies for most properties (properties in rental markets with limited supply, properties serving the elderly and certain other properties). The 1997 Housing Act phases out project-based subsidies on selected properties serving families not located in the rental markets with limited supply, converting each such subsidy to a tenant-based subsidy. Under a tenant based system, rent vouchers would be issued to qualified tenants who then could elect to reside at a property of their choice, provided the tenant has the financial ability to pay the difference between the selected property's monthly rent and the value of the voucher, which would be established based on HUD's regulated fair market rent for the relevant geographical areas. The 1997 Housing Act provides that properties will begin the restructuring process in Federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final regulations implementing the 1997 Housing Act on or before October 27, 1998. Congress has elected to renew HAP Contracts expiring before October 1, 1998 for one-year terms, generally at existing rents, so long as the properties remain in compliance with the HAP Contracts. While the Company does not expect the provisions of the 1997 Housing Act to result in a significant number of tenants relocating from properties managed by the Company, there can be no assurance that the provisions will not significantly affect the Company's management portfolio. Furthermore, there can be no assurance that other changes in Federal housing subsidy will not occur. Any such changes could have an adverse effect on the Company's property management revenues. HIGH PERFORMANCE UNITS In January 1998, the AIMCO Operating Partnership agreed to sell 15,000 Class I High Performance Partnership Units (the "High Performance Units") to a partnership owned by fourteen members of AIMCO's senior management, and to three of its independent directors for $2.1 million in cash. The High Performance Units have nominal value unless the total return of AIMCO's Class A Common Stock (defined as dividend income plus share price appreciation), over the three year period ending December 31, 2000, is at least 30% and exceeds the industry average, as determined by a peer group index, by at least 15% (the "Total Return"). At the conclusion of the three year period, if the Total Return of AIMCO's Class A Common Stock satisfies these criteria, the holders of the High Performance Units will receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times as would holders of a number of OP Units equal to the quotient obtained by dividing (i) the product of (a) 15% of the amount by which the Total Return of AIMCO's Class A Common Stock over the three year period exceeds the 83 89 greater of 115% of a peer group index or 30% (such excess being the "Excess Return"), multiplied by (b) the weighted average market value of the AIMCO Operating Partnership's outstanding OP Units, by (ii) the market value of one share of Class A Common Stock at the end of the three year period. The three-year measurement period will be shortened in the event of a change of control of the Company. Unlike OP Units, the High Performance Units are not redeemable or convertible into Class A Common Stock unless a change of control of the Company occurs. Because there is substantial uncertainty that the High Performance Units will have more than nominal value due to the required Total Return over the three-year term, the AIMCO Operating Partnership has not recorded any value to the High Performance Units. If the measurement period had ended September 30, 1998, the Excess Return would have been $16.5 million and the value of the High Performance Units would have been $2.5 million, and such High Performance Units would have had no dilutive effect on net income per unit. YEAR 2000 READINESS DISCLOSURE General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-It Systems The Year 2000 Issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past twenty months, the Company has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing, and implementation. To date, the Company has fully completed its assessment of all information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. COMPUTER HARDWARE During 1997, the Company identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. The Company has replaced its mainframe system, including the creation of new applications, at a total cost of approximately $1.1 million. In August 1998, the Year-2000 compliant system became fully functional. In addition to the mainframe, PC-based network servers and routers and desktop PCs were analyzed for compliance. The Company has begun to replace each of the non-compliant network connections and desktop PCs and, as of September 30, 1998, is approximately 85% complete with this effort. The total cost to replace the PC-based network servers and routers and desktop PCs is expected to be approximately $1.2 million, of which $886,000 has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year-2000 compliant systems by March 31, 1999. COMPUTER SOFTWARE As for software, the Company utilizes a combination of off-the-shelf commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. 84 90 In 1997, when the Company merged with NHP Incorporated, the core financial system used by NHP was Year-2000 compliant. During 1998, the Company integrated all of its core financial systems to this compliant system for general ledger and financial reporting purposes. In 1997, the Company determined that the software used for property management and rent collection was not Year-2000 compliant. During 1998, the Company has implemented a Year-2000 compliant system at each of its property sites, including owned and managed, at a cost of $700,000. Since then, the Company has acquired 75 properties and has also merged with Insignia. Insignia owned or managed 140 properties. As properties are acquired, the Company converts the existing property management and rent collection systems to the Company's Year-2000 compliant systems. The estimated additional costs to convert such systems at all recently acquired properties, including those acquired in the merger with Insignia, is $200,000, and the implementation and testing process is expected to be completed by March 31, 1999. The final software area is the office software and server operating systems. The Company has upgraded all non-compliant office software systems on each PC and has upgraded 93% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year-2000 compliant by December 1998. OPERATING EQUIPMENT The Company has operating equipment, primarily at the property sites, which needed to be evaluated for Year-2000 compliance. In September 1997, the Company began taking a census and inventorying embedded systems issues. At that time, management chose to focus its attention mainly upon security systems, elevators, heating-ventilation-air-conditioning systems (HVAC), telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Company at risk financially or operationally. We intend to have a third-party conduct an audit of these systems and report their findings by December 1998. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of September 30, 1998, we have evaluated approximately 86% of the operating equipment for Year-2000 compliance. The total cost incurred as of September 30, 1998 to replace or repair the operating equipment was approximately $70,000. We estimate the cost to replace or repair any remaining operating equipment is approximately $325,000, and we expect to be completed by April 30th, 1999. We continue to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within our enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Company is currently actively conducting surveys of its banking and vendor relationships to assess risks regarding their Year-2000 readiness. The Company has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Company has updated data transmission standards with two of the three financial institutions. The Company's contingency plan in this regard is to move accounts from any institution that cannot be certified 2000 compliant by June 1, 1999. The Company does not rely heavily on any single vendor for goods and services and does not have significant suppliers and subcontractors who share information systems with the Company (external agents). To date, the Company is not aware of any external agent with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. Management does not believe that the inability of external agents to complete their Year 2000 resolution process in a timely manner will have a material impact on the financial position or results of operations of the Company. However, the effect of non-compliance by external agents is not readily determinable. 85 91 Costs to Address Year 2000 The total cost of the Year 2000 project is estimated at $3.4 million and is being funded through operating cash flows. To date, the Company has incurred approximately $2.7 million ($0.5 million expensed and $2.2 million capitalized for new systems and equipment), related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.4 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.3 million relates to repair of hardware and software and will be expensed as incurred. Risks Associated with the Year 2000 Management believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios include elevators, security and HVAC systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change is annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems failure, for example, equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. Inflation Substantially all of the leases at the Company's apartment properties are for a period of six months or less, allowing, at the time of renewal, for adjustments in the rental rate and the opportunity to re-lease the apartment unit at the prevailing market rate. The short-term nature of these leases generally serves to minimize the risk to the Company of the adverse effect of inflation and the Company does not believe that inflation has had a material adverse impact on its revenues. Litigation In connection with the Company's offers to purchase interests in limited partnerships that own properties, the Company and its affiliates are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the limited partners of such partnerships or violations of the relevant partnership agreements. The Company believes it complies with its fiduciary obligations and relevant partnership agreements, and does not expect such legal actions to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole. The Company may incur costs in connection with the defense or settlement of such litigation, which could adversely affect the Company's desire or ability to complete certain transactions and thereby have a material adverse effect on the Company and its subsidiaries. 86 92 Comparison of the year ended December 31, 1997 to the year ended December 31, 1996 Net Income The Company recognized net income of $32.7 million and net income attributable to holders of OP Units of $30.4 million for the year ended December 31, 1997 compared to net income of $15.7 million, all attributable to holders of OP Units, for the year ended December 31, 1996. Net income attributable to holders of OP Units represents net income less a provision for accrued dividends on the AIMCO Operating Partnership's Class B Partnership Preferred Units and Class C Partnership Preferred Units, which were issued in August and December 1997, respectively. There were no Preferred Units outstanding during 1996. The increase in net income allocable to holders of OP Units of $14.7 million, or 93.6%, was primarily the result of the following: - the acquisition of 10,484 units in 42 apartment communities primarily during November and December 1996 (the "1996 Acquisitions"); - the acquisition of 11,706 units in 44 apartment communities during 1997; - the acquisition of interests in the NHP Partnerships during the period June through December 1997; - the acquisition of NHP in December 1997; and - interest income on general partner loans to unconsolidated real estate partnerships. The effect of these acquisitions on net income was partially offset by the sale of four properties in August 1996 (the "1996 Dispositions") and five properties in October 1997. These factors are discussed in more detail in the following paragraphs. Rental Property Operations Rental and other property revenues from the Company's Owned Properties totaled $193.0 million for the year ended December 31, 1997, compared to $100.5 million for the year ended December 31, 1996, an increase of $92.5 million, or 92.0%. Rental and other property revenues consisted of the following (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- "Same store" properties............................. $ 78,724 $ 75,069 1996 Acquisitions................................... 68,505 14,970 1997 Acquisitions................................... 22,163 -- Acquisition of interests in the NHP Partnerships.... 15,592 -- 1996 Dispositions................................... -- 3,363 1997 Dispositions................................... 4,092 4,719 Properties in lease-up after the completion of an expansion or renovation........................... 3,930 2,395 -------- -------- Total..................................... $193,006 $100,516 ======== ========
Average monthly rent per occupied unit for the same store properties increased to $571 at December 31, 1997 from $560 at December 31, 1996, an increase of 2.0%. Weighted average physical occupancy for the properties increased to 94.8% at December 31, 1997 from 94.5% at December 31, 1996, an increase of 0.3%. 87 93 Property operating expenses consist of on-site payroll costs, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance. Property operating expenses totaled $76.2 million for the year ended December 31, 1997, compared to $38.4 million for the year ended December 31, 1996, an increase of $37.8 million, or 98.4%. Property operating expenses consisted of the following (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- "Same store" properties............................. $28,009 $28,234 1996 Acquisitions................................... 28,911 5,258 1997 Acquisitions................................... 8,402 -- Acquisition of interests in the NHP Partnerships.... 7,304 -- 1996 Dispositions................................... -- 1,793 1997 Dispositions................................... 1,972 2,300 Properties in lease-up after the completion of an expansion or renovation........................... 1,570 815 ------- ------- Total..................................... $76,168 $38,400 ======= =======
Owned Property management expenses, representing the costs of managing the Owned Properties, totaled $6.6 million for the year ended December 31, 1997, compared to $2.7 million for the year ended December 31, 1996, an increase of $3.9 million, or 144.4%. The increase resulted from the acquisition of properties in 1996 and 1997 and the acquisition of interests in the NHP Partnerships. Service Company Business The Company's share of income from the service company business was $2.0 million for the year ended December 31, 1997, compared to $1.7 million for the year ended December 31, 1996, an increase of $0.3 million or 17.6%. The increase is due to the acquisition by the Company of property management businesses in August and November 1996, the acquisition of partnership interests which provide for certain partnership and administrative fees, and a captive insurance subsidiary acquired in connection with the acquisition of the NHP Real Estate Companies in June 1997, which were offset by the expiration of the Company's commercial asset management contracts on March 31, 1997. The Company's share of income from service company businesses consisted of the following (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- Properties managed for third parties and affiliates Management fees and other income.................. $ 9,353 $ 5,679 Management and other expenses..................... (9,045) (4,405) ------- ------- 308 1,274 ------- ------- Commercial asset management Management and other income....................... 245 1,026 Management and other expenses..................... (275) (339) ------- ------- (30) 687 ------- ------- Reinsurance operations Revenues.......................................... 4,228 1,267 Expenses.......................................... (360) (282) ------- ------- 3,868 985 ------- ------- Brokerage and other Revenues.......................................... 111 395 Expenses.......................................... (230) (326) ------- ------- (119) 69 ------- ------- $ 4,027 $ 3,015 ======= =======
88 94 Income from the management of properties for third parties and affiliates was $0.3 million for the year ended December 31, 1997, compared to $1.3 million for the year ended December 31, 1996, a decrease of $1.0 million, or 76.9%. Losses from commercial asset management were $30,000 for the year ended December 31, 1997 compared to income of $0.7 million for the year ended December 31, 1996. The decrease is primarily due to the expiration of certain commercial management contracts in March 1997. Income from the reinsurance operations for the year ended December 31, 1997 increased by $2.9 million from the year ended December 31, 1996, due to increased premiums collected from a larger work force, improved loss experience and the closure of claims for less than the amounts previously reserved, as well as the acquisition of the NHP Real Estate Companies, which included the acquisition of a captive insurance company. General and Administrative Expenses General and administrative expenses totaled $5.4 million for the year ended December 31, 1997 compared to $1.5 million for the year ended December 31, 1996, an increase of $3.9 million, or 260.0%. The increase in general and administrative expenses is primarily due to the payment of incentive compensation to members of senior management and other employees. Interest Expense Interest expense, which includes the amortization of deferred finance costs, totaled $51.4 million for the year ended December 31, 1997, compared to $24.8 million for the year ended December 31, 1996, an increase of $26.6 million or 107.3%. The increase consists of the following (in thousands): Interest expense on secured short-term and long-term indebtedness incurred in connection with the 1996 Acquisitions.............................................. $11,054 Interest expense on secured and unsecured short-term and long-term indebtedness incurred in connection with the 1997 Acquisitions......................................... 7,082 Interest expense on secured and unsecured short-term and long-term indebtedness incurred in connection with the acquisition of interests in the NHP Partnerships.......... 6,924 Increase in interest expense on the Credit Facility due to borrowings used in connection with the refinancing of short-term indebtedness and the acquisition of the NHP Real Estate Companies in June 1997, net of decreased interest expense on existing indebtedness due to principal amortization.............................................. 1,523 ------- Total increase.................................... $26,583 =======
Interest income Interest income totaled $8.7 million for the year ended December 31, 1997, compared to $0.5 million for the year ended December 31, 1996. The increase is primarily due to interest earned on general partner loans to unconsolidated real estate partnerships acquired in 1997. Comparison of the year ended December 31, 1996 to the year ended December 31, 1995 The Company recognized net income of $15.7 million for the year ended December 31, 1996, all of which was attributable to holders of OP Units. For the year ended December 31, 1995, the Company recognized net income of $15.0 million, of which $5.2 million was attributable to the holder of Preferred Units and $9.8 million was attributable to holders of OP Units. The increase in net income allocable to the holders of OP Units in 1996 of 60.2% was primarily the result of the 1996 acquisitions offset by the 1996 dispositions. The increase in net income is partially offset by increased interest expense associated with debt which was incurred in June 1995 and September 1995 upon the repurchase of 966,000 Preferred Units and 513,514 OP Units, increased interest expense attributable to indebtedness assumed or incurred in connection 89 95 with the 1996 acquisitions, offset by decreased interest expense after the pay down of the Company's credit facility with proceeds from the 1996 dispositions. These factors are discussed in more detail in the following paragraphs. Rental Property Operations Rental and other property revenues from the Owned Properties totaled $100.5 million for the year ended December 31, 1996, compared to $74.9 million for the year ended December 31, 1995, an increase of $25.6 million, or 34.2%. Rental and other property revenues consisted of the following (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- "Same store" properties............................. $ 69,268 $67,058 1996 Acquisitions................................... 25,929 517 1996 Dispositions................................... 3,363 5,272 Properties in lease-up after the completion of an expansion or renovation........................... 1,956 2,100 -------- ------- Total..................................... $100,516 $74,947 ======== =======
Average monthly rent per occupied unit for these 42 properties at December 31, 1996 and 1995 was $546 and $531, respectively, an increase of 2.8%. Weighted average physical occupancy for the 42 properties increased from 94.2% at December 31, 1995 to 94.9% at December 31, 1996, a 0.7% increase. Property operating expenses totaled $38.4 million for the year ended December 31, 1996, compared to $30.2 million for the year ended December 31, 1995, an increase of $8.2 million, or 27.2%. Property operating expenses consisted of the following (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- "Same store" properties............................. $26,103 $25,615 1996 Acquisitions................................... 9,652 218 1996 Dispositions................................... 1,793 3,146 Properties in lease-up after the completion of an expansion or renovation........................... 852 1,171 ------- ------- Total..................................... $38,400 $30,150 ======= =======
Owned property management expenses totaled $2.7 million for the year ended December 31, 1996, compared to $2.3 million for the year ended December 31, 1995, an increase of $0.4 million or 17.4%. The increase is primarily due to the acquisition of properties in 1996. 90 96 Service Company Business The Company's share of income from the service company business was $1.7 million for the year ended December 31, 1996 compared to $2.0 million for the year ended December 31, 1995. Management fees and other income totaled $8.4 million for the year ended December 31, 1996 compared to $8.1 million for the year ended December 31, 1995, reflecting an increase of $0.3 million, or 3.7%. Management and other expenses totaled $5.4 million for the year ended December 31, 1996 compared to $5.0 million for the year ended December 31, 1995, reflecting an increase of $0.4 million, or 8.0%. Major sources of revenue and expense before amortization of management company goodwill, corporate overhead allocations, depreciation and amortization and minority interest are described below (in thousands).
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- Properties managed for third parties and affiliates Management fees and other income.................. $ 5,679 $ 4,878 Management and other expenses..................... (4,405) (3,620) ------- ------- 1,274 1,258 ------- ------- Commercial asset management Management and other income....................... 1,026 1,564 Management and other expenses..................... (339) (562) ------- ------- 687 1,002 ------- ------- Reinsurance operations Revenues.......................................... 1,267 1,193 Expenses.......................................... (282) (432) ------- ------- 985 761 ------- ------- Brokerage and other Revenues.......................................... 395 497 Expenses.......................................... (326) (339) ------- ------- 69 158 ------- ------- $ 3,015 $ 3,179 ======= =======
Income from the management of properties for third parties and affiliates was $1.3 million for the years ended December 31, 1996 and 1995. Management fee revenues increased from $4.9 million for the year ended December 31, 1995 to $5.7 million for the year ended December 31, 1996, an increase of $0.8 million or 16.4%, primarily as a result of the acquisition of properties in 1996. A comparable increase in management expenses was also experienced in 1996. Income from commercial asset management was $0.7 million for the year ended December 31, 1996 compared to $1.0 million for the year ended December 31, 1995, a decrease of $0.3 million or 30.0%. Commercial management revenues declined from $1.6 million in 1995 to $1.0 million in 1996, primarily due to the reduction in the number of properties managed. Commercial management expenses declined from $0.6 million to $0.3 million as a result of fewer managed properties. The asset management contracts expired on March 31, 1997. Income from the reinsurance operations for the year ended December 31, 1996 increased by $0.2 million, or 29.4%, from the year ended December 31, 1995, due to increased premiums collected from a larger work force, improved loss experience and the closure of claims for less than the amounts previously reserved. General and Administrative Expenses General and administrative expenses totaled $1.5 million for the year ended December 31, 1996 compared to $1.8 million for the year ended December 31, 1995, a decrease of $0.3 million or 16.7%. The amount presented for 1996 included $1.5 million for payroll, overhead and other costs associated with operating a public company and $0.6 million for payroll and other costs incurred in the development of new business offset by a corporate overhead allocation of $0.6 million to the service company business. The amount 91 97 presented for 1995 included $1.6 million for payroll, overhead and other costs associated with operating a public company, and $0.8 million for payroll and other costs incurred in the development of new business offset by a corporate overhead allocation of $0.6 million to the service company business. The net decrease in general and administrative expenses for the year ended December 31, 1996 is attributable to fewer personnel and a decrease in state income taxes paid in 1996 as a result of the restructuring in early 1995. Interest Expense Interest expense totaled $24.8 million for the year ended December 31, 1996 compared to $13.3 million for the year ended December 31, 1995, an increase of $11.5 million or 86.5%. The increase consists primarily of $5.7 million of interest expense on secured long-term debt incurred in connection with refinancings completed in June 1995 and September 1995 to refinance certain secured notes payable, repurchase 966,000 Preferred Units and 513,514 OP Units, and $5.6 million of interest expense on long-term and short-term indebtedness incurred or assumed in connection with the 1996 acquisitions. Interest expense on secured tax-exempt bond financing increased by $1.0 million, or 13.5%, due to an increase in interest rate on the $48.1 million of tax-exempt bonds refinanced in June 1996 and the borrowing of $9.9 million in June 1996 (proceeds of which were used to pay down the Company's credit facility). During the year ended December 31, 1996, the Company capitalized interest of $0.8 million as a result of increased construction and renovation activities compared to $0.1 million which was capitalized during the year ended December 31, 1995. Interest expense, amortization of deferred financing costs and unused commitment fees on the Credit Facility were $1.6 million for the years ended December 31, 1996 and 1995. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had $49.3 million in cash and cash equivalents. In addition, the Company had $75.1 million of restricted cash primarily consisting of reserves and impounds held by lenders for capital expenditures, property taxes and insurance. The Company's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, acquisitions of or investments in properties and distributions paid to limited partners in the AIMCO Operating Partnership. The Company considers its cash provided by operating activities, and funds available under its credit facilities, to be adequate to meet short-term liquidity demands. The Company utilizes its revolving credit facilities for general corporate purposes and to fund investments on an interim basis. On October 1, 1998, the Company amended and restated its credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement now provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million (the "BOA Credit Facility"). The AIMCO Operating Partnership is the borrower under the BOA Credit Facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the BOA Credit Facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the BOA Credit Facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the Company's consolidated unsecured indebtedness to the value of certain unencumbered assets. The BOA Credit Facility matures on October 1, 1999 unless extended, at the discretion of the lenders. The BOA Credit Facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the BOA Credit Facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants contained in the BOA Credit Facility require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the BOA Credit Facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From 92 98 Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. In October 1998, the AIMCO Operating Partnership and AIMCO entered into the $300 million Interim Term Loan Agreement. The term loan matures in one year. AIMCO used the proceeds to refinance existing outstanding indebtedness of Insignia at the time of the merger. In February 1998, the AIMCO Operating Partnership, as borrower, and AIMCO and the Owners, as guarantors, entered into the five year, $50 million secured WMF Credit Facility with Washington Mortgage, which provides for the conversion of all or a portion of such revolving credit facility to a term facility. The WMF Credit Facility provides that all the rights of Washington Mortgage are assigned to FNMA, but FNMA does not assume Washington Mortgage's obligations under the WMF Credit Facility. At the AIMCO Operating Partnership's request, the commitment amount under the WMF Credit Facility may be increased to an amount not to exceed $250 million, subject to the consent of Washington Mortgage and FNMA in their sole and absolute discretion. The AIMCO Operating Partnership and affiliates have pledged their ownership interests in the Owners as security for its obligations under the WMF Credit Facility. The guarantees of the Owners are secured by assets of the Owners, including four apartment properties and two mortgage notes. Advances to the AIMCO Operating Partnership under the WMF Credit Facility are funded with the proceeds of the sale to investors of mortgage-backed securities issued by FNMA, that are secured by the advance and an interest in the collateral. The interest rate on each advance is determined by investor bids for such mortgage-backed securities, plus a margin presently equal to 0.5%. The maturity date of each advance under the revolving portion of the WMF Credit Facility is a date between three and nine months from the closing date of the advance, as selected by the AIMCO Operating Partnership. Advances under the term facility mature at a date, selected by the AIMCO Operating Partnership, between ten and twenty years from the date of the advance. Subject to certain conditions, the AIMCO Operating Partnership has the right to add or substitute collateral. The WMF Credit Facility requires the Company to maintain a ratio of debt to gross asset value of no more than 55%, an interest coverage ratio of at least 225%, and a debt service coverage ratio of at least 14.5% for the trailing 12 month period and 135% for the trailing three month period, imposes minimum net worth requirements and also provides other financial covenants and interest coverage ratio requirements that are specifically related to the collateral. The AIMCO Operating Partnership had outstanding borrowings under the WMF Credit Facility of $50.0 million as of June 30, 1998. As a result of the Insignia merger, AIMCO assumed Insignia's obligations under its 6 1/2% convertible debentures. In connection therewith, the AIMCO Operating Partnership issued a convertible note to the Special Limited Partner with terms economically equivalent to those of the convertible debentures. The convertible note will mature on September 30, 2016 and bears interest at the rate of 6.5% per annum, with quarterly interest payments payable in arrears. Interest payments may be deferred from time to time, but not for more than 20 consecutive quarters. The convertible note is convertible into the AIMCO Operating Partnership's Class E Partnership Preferred Units at $57.21 per unit through September 30, 2016. The convertible note may be redeemed after November 1, 1999. In September 1997, the Company entered into an interest rate lock agreement with a major investment banking company, having a notional principal amount of $75.0 million, in anticipation of refinancing certain floating rate indebtedness. The interest rate lock agreement fixed the ten-year treasury rate at 6.32%. During 1998, the Company refinanced certain mortgage indebtedness relating to ten real estate partnerships and realized losses of approximately $3.9 million, which have been deferred and will be amortized over the life of the refinanced debt. These losses, when amortized, will result in effective interest rates of 7.7% over the life of the refinanced debt. On May 8, 1998, in connection with the consummation of the merger with Ambassador, the Company assumed six interest rate swap agreements, having termination dates between October 3, 2003, and March 3, 2004, with several major investment banking firms. The swap agreements modify the interest characteristics of a portion of the Company's outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the 93 99 agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as adjustment of interest expense related to the debt. The related interest amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Pursuant to the terms of the swap and related credit support agreements, the Company is required to post collateral to the swap providers for an amount equal to their exposure, as defined, in each case to the extent that a specified threshold is exceeded. The collateral posted by the Company may be in the form of cash or governmental securities, as determined by the Company. At June 30, 1998, the Company had posted approximately $6.6 million in cash collateral under its swap agreements. The Company estimates that for every 0.25% decrease in the LIBOR interest rate yield, it will be required to post approximately $2 million of additional collateral with the swap providers. If interest rates rise, the Company estimates that for every 0.25% increase in the LIBOR interest rate yield curve, recovery of the posted collateral of a similar amount will be received up to the outstanding collateral balances. On June 2, 1998, the Company settled one of the swap agreements. It is the intent of the Company to terminate the remaining swap agreements in December, 1998. Based on the market value of the outstanding swap agreements at June 30, 1998, the Company had an unrealized loss of $1.9 million. From time to time, the Company has offered to acquire and, in the future, may offer to acquire the interests held by third party investors in certain limited partnerships for which the Company acts as general partner. Any such acquisitions will require funds to pay the purchase price for such interests. Cash payments made in connection with such acquisitions totaled $10.9 million for the six months ended June 30, 1998. The Company expects to meet its short-term liquidity requirements, including property acquisitions, tender offers, refinancings of short-term debt, the funds needed to purchase shares of Insignia under the Call Agreements, the IPT Shares and the funds needed for the Special Dividend, with long-term, fixed rate, fully amortizing debt, secured or unsecured short-term indebtedness (including indebtedness under the BOA Credit Facility, the WMF Credit Facility and the Interim Term Loan Agreement), the issuance of debt securities, Partnership OP Units or equity securities in public offerings or private placements, and cash generated from operations. In April 1997, AIMCO filed a shelf registration statement with the SEC that registered $1.0 billion of securities for sale on a delayed or continuous basis. The shelf registration statement was declared effective in May 1997. As of August 28, 1998, AIMCO had issued common and preferred stock thereunder and received net proceeds of approximately $726.8 million. The net proceeds from such offerings are contributed by AIMCO to the Partnership. As of June 30, 1998, 94% of the Company's Owned Properties and 43% of its total assets were encumbered by debt, and the Company had total outstanding indebtedness of $1,314.5 million, of which $1,196.0 was secured by Owned Properties and other assets. The Company's indebtedness is comprised of $751.3 million of secured, long-term financing, $50.0 million of secured, short-term financing, $394.7 million of secured, tax-exempt bonds and $118.5 million outstanding under the BOA Credit Facility, which is unsecured. As of June 30, 1998, approximately 14% of the Company's indebtedness bears interest at variable rates. General Motors Acceptance Corporation has made 93 loans (the "GMAC Loans"), with an aggregate outstanding principal balance of $420.1 million as of June 30, 1998, to property-owning partnerships controlled by the Company, each of which is secured by the property owned by such partnership. GMAC Loans with an aggregate outstanding principal balance of $163.8 million as of June 30, 1998, are cross-collateralized with certain other GMAC Loans, and certain loans held by FNMA, having an aggregate principal balance of $303.9 million as of June 30, 1998, are cross-collateralized and cross-defaulted with certain other FNMA loans to the Company. Other than certain GMAC Loans, FNMA loans and loans under the BOA Credit Facility, the Interim Term Loan Agreement and the WMF Credit Facility, none of the Company's debt is subject to cross-collateralization or cross-default provisions. At June 30, 1998 the weighted average interest rate on the Company's consolidated indebtedness was 7.9%, with a weighted average maturity of 13 years. 94 100 CAPITAL EXPENDITURES For the six months ended June 30, 1998, the Company spent $13.5 million for capital replacements (expenditures for routine maintenance of a property) and $8.0 million for initial capital expenditures (expenditures at a property that have been identified, at the time the property is acquired, as expenditures to be incurred within one year of the acquisition). In addition, the Company spent an aggregate of $5.3 million for capital enhancements (spending to increase a property's revenue potential including renovations, developments and expansions) and the renovation of four properties owned by the Company. These expenditures were funded by working capital reserves, borrowings under the Company's credit facilities and cash provided by operating activities. The Company reserves $300 per apartment unit per annum for capital replacements, which totaled $6.6 million for the six months ended June 30, 1998. The Company has $2.4 million of reserved but unspent amounts remaining from prior periods that can be used for future capital replacements. The Company expects to incur initial capital expenditures and capital enhancements of approximately $56 million during the balance of the year ended December 31, 1998. Initial capital expenditures and capital enhancements will be funded with cash from operating activities and borrowings under the Company's revolving credit facilities. For the year ended December 31, 1997, the Company spent $7.4 million for capital replacements, $9.1 million for initial capital expenditures, and $8.5 million for construction and capital enhancements (amenities that add a material new feature or revenue source at a property). These expenditures were funded by borrowings under the BOA Credit Facility, working capital reserves and net cash provided by operating activities. The Company's accounting treatment of various capital and maintenance costs is detailed in the following table:
ACCOUNTING DEPRECIABLE EXPENDITURE TREATMENT LIFE IN YEARS ----------- ---------- ------------- Initial capital expenditures................................ capitalize 5 to 30 Capital enhancements........................................ capitalize 5 to 30 Capital replacements: Carpet/vinyl replacement.................................. capitalize 5 Carpet cleaning........................................... expense N/A Major appliance replacement (refrigerators, stoves, dishwashers, washers/dryers)........................................ capitalize 5 Cabinet replacement....................................... capitalize 5 Major new landscaping..................................... capitalize 5 Seasonal plantings and landscape replacements............. expense N/A Roof replacements......................................... capitalize 30 Roof repairs.............................................. expense N/A Model furniture........................................... capitalize 5 Office equipment.......................................... capitalize 5 Exterior painting, significant............................ capitalize 5 Interior painting......................................... expense N/A Parking lot repairs....................................... expense N/A Parking lot repaving...................................... capitalize 30 Equipment repairs......................................... expense N/A General policy for capitalization......................... capitalize various amounts in excess of $250
95 101 FUNDS FROM OPERATIONS The Company measures its economic profitability based on Funds From Operations ("FFO"). The Company's management believes that FFO provides investors with an understanding of the Company's ability to incur and service debt and make capital expenditures. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO in a manner based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash, deferred portion of the income tax provision for unconsolidated subsidiaries and the payment of dividends on Preferred Units. FFO should not be considered as an alternative to net income or net cash flows from operating activities, as calculated in accordance with GAAP, as an indication of the Company's performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, there can be no assurance that the Company's basis for computing FFO is comparable with that of other real estate investment trusts. For the six months ended June 30, 1998 and 1997, and the years ended December 31, 1997, 1996 and 1995, the Company's FFO was as follows (amounts in thousands):
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- --------------------------------- 1998 1997 1997 1996 1995 -------- -------- --------- --------- --------- Net income........................... $38,524 $11,464 $32,697 $15,673 $14,988 Extraordinary item................... -- 269 269 -- -- Gain on disposition of properties.... (2,526) -- (2,720) (44) -- Real estate depreciation, net of minority interests................. 32,423 13,250 33,751 19,056 15,038 Amortization of management company goodwill........................... 4,727 474 948 500 428 Equity in earnings of other partnerships: Real estate depreciation........... 9,131 697 6,280 -- -- Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........... -- 1,263 3,584 -- -- Deferred taxes..................... 4,291 874 4,894 -- -- Amortization of management contracts....................... 3,088 472 1,587 -- -- Less amortization of management contracts where the recorded values of certain contracts are not expected to be recovered through future cash flows....... -- (322) -- -- -- Preferred Unit distributions......... (6,001) -- (135) -- (5,169) ------- ------- ------- ------- ------- Funds From Operations (FFO).......... $83,657 $28,441 $81,155 $35,185 $25,285 ======= ======= ======= ======= ======= Weighted average number of OP Units and OP Unit equivalents outstanding: OP Units........................... 48,812 21,455 27,732 14,978 11,453 OP Unit equivalents................ 203 135 381 16 8 Preferred Units convertible to OP Units........................... 2,463 -- 1,006 -- -- ------- ------- ------- ------- ------- 51,478 21,590 29,119 14,994 11,461 ======= ======= ======= ======= =======
96 102 CASH FLOW For the six months ended June 30, 1998 and 1997, and the years ended December 31, 1997, 1996 and 1995, the Company's net cash flows were as follows (amounts in thousands):
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------- 1998 1997 1997 1996 1995 ----------- ----------- --------- -------- -------- CASH FLOW INFORMATION: Cash flow provided by operating activities...... $ 5,838 $ 25,035 $ 73,032 $ 38,806 $ 25,911 Cash flow used in investing activities................ (100,669) (108,134) (717,663) (88,144) (60,821) Cash flow provided by (used in) financing activities................ 107,063 91,450 668,549 60,129 30,145
COMMITMENTS AND CONTINGENCIES HUD Enforcement and Limited Denials of Participation A significant number of units included in the AIMCO Properties are subject to regulation by HUD. Under its regulations, HUD has the authority to suspend or deny property owners and managers from participation in HUD programs with respect to additional assistance within a geographic region through imposition of an LDP by any HUD office or nationwide for violations of HUD regulatory requirements. In March 1997, HUD announced its intention to step up enforcement against property owners and managers who violate their agreements with HUD, and, in July 1997, HUD announced the creation of a new department-wide enforcement division. In June 1997, the St. Louis HUD field office issued an LDP to NHP as a result of a physical inspection and mortgage default at one property owned and managed by NHP-related companies. The LDP suspended NHP's ability to manage or acquire additional HUD-assisted properties in eastern Missouri until June 24, 1998. Although the LDP has expired by its terms, the Company has proposed a settlement agreement with HUD which includes aggregate payments to HUD of approximately $485,000 and withdrawal of the LDP as of its date of issuance. The Company believes a settlement will be executed in the near future. Because an LDP is prospective, existing HUD agreements are not affected, so an LDP is not expected to result in the loss of management service revenue from or to otherwise affect properties that the Company currently manages in the subject regions. In addition, the Company has resolved concerns raised by two other HUD field offices. If HUD were to disapprove the Company as property manager for one or more properties, the Company's ability to obtain property management revenues from additional HUD-regulated properties may be impaired. HUD monitors the performance of properties with HUD-insured mortgage loans. HUD also monitors compliance with applicable regulations, and takes performance and compliance into account in approving management of HUD-assisted properties. In this regard, since July 1988, 29 HUD-assisted properties owned or managed by NHP or NHP-related companies have defaulted on non-recourse HUD-insured mortgage loans. Eight of these 29 properties are also currently managed by the Company. An additional six properties owned or managed by NHP have received unsatisfactory performance ratings. As a result of the defaults and unsatisfactory ratings, the national HUD office must review any application by the Company to act as property manager or owner for additional HUD-assisted properties. The national HUD office has consistently approved NHP's applications to manage new properties, and the Company received HUD clearance to acquire its interests in NHP and NHP-related companies. The Company believes that it enjoys a good working relationship with HUD and that the national office will continue to apply the clearance process to large management portfolios such as the Company's with discretion and flexibility. While there can be no assurance, the Company believes that the unsatisfactory reviews and the mortgage defaults will not have a material impact on its results of operations or financial condition. In October 1997, NHP received a subpoena from the Inspector General of HUD (the "Inspector General") requesting documents relating to any arrangement whereby NHP or any of its affiliates provides or has provided compensation to owners of HUD multifamily projects in exchange for or in connection with property management of a HUD project. The Company believes that other owners and managers of HUD 97 103 projects have received similar subpoenas. Documents relating to certain of the Company's acquisitions of property management rights for HUD projects may be responsive to the subpoena. The Company is in the process of complying with the subpoena and has provided certain documents to the Inspector General, without conceding that they are responsive to the subpoena. The Company believes that its operations are in compliance, in all material respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. Effective February 13, 1998, counsel for the Company and the U.S. Attorney for the Northern District of California entered into a tolling agreement related to certain civil claims the government may have against the Company. Although no action has been initiated against the Company or, to the Company's knowledge, any owner of a HUD property managed by the Company, if any such action is taken in the future, it could ultimately affect existing arrangements with respect to HUD projects or otherwise have a material adverse effect on the Company's results of operations. Environmental Under Federal, state and local environmental laws and regulations, a current or previous owner or operator of real property may be required to investigate and clean up a release of hazardous substances at such property, and may, under such laws and common law, be held liable for property damage and other costs incurred by third parties in connection with such releases. The liability under certain of these laws has been interpreted to be joint and several unless the harm is divisible or there is a reasonable basis for allocation of responsibility. The failure to remediate the property properly may also adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. In connection with its ownership, operation or management of the AIMCO Properties, the Company could be potentially liable for environmental liabilities or costs associated with its properties or properties it may in the future acquire or manage. Certain Federal, state and local laws and regulations govern the removal, encapsulation or disturbance of asbestos-containing materials ("ACMs") when those materials are in poor condition or in the event of building remodeling, renovation or demolition; impose certain worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air. These laws also impose liability for a release of ACMs and may enable third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership, operation or management of properties, the Company could be potentially liable for those costs. There are ACMs at certain of the Owned Properties, and there may be ACMs at certain of the other AIMCO Properties. The Company has developed and implemented operations and maintenance programs, as appropriate, that establish operating procedures with respect to the ACMs at most of the Owned Properties, and intends to develop and implement, as appropriate, such programs at AIMCO Properties that do not have such programs. Certain of the Owned Properties, and some of the other AIMCO Properties, are located on or near properties that contain or have contained underground storage tanks or on which activities have occurred which could have released hazardous substances into the soil or groundwater. There can be no assurances that such hazardous substances have not been released or have not migrated, or in the future will not be released or will not migrate, onto the AIMCO Properties. Such hazardous substances have been released at certain Owned Properties and, in at least one case, have migrated from an off-site location onto the Company's property. In addition, the Company's Montecito property in Austin, Texas, is located adjacent to, and may be partially on, land that was used as a landfill. Low levels of methane and other landfill gas have been detected at Montecito. The City of Austin, the former landfill operator, has assumed responsibility for conducting all investigation and remedial activities to date associated with the methane and other landfill gas. The remediation of the landfill gas is now substantially complete and the Texas Natural Resources Conservation Commission ("TNRCC") has preliminarily approved the methane gas remediation efforts. Final approval of the site and the remediation process is contingent upon the results of continued methane gas monitors to confirm the effectiveness of the remediation efforts. Should further actionable levels of methane gas be detected, the City of Austin may implement a proposed contingency plan of passive methane gas venting. The City of Austin has also conducted testing at Montecito to determine whether, and to what extent, groundwater has been impacted. Based on test reports received to date by the Company, the groundwater does not appear to be contaminated at actionable levels. The Company has not incurred, and does not expect to incur, liability for the landfill investigation and remediation. However, in connection with the present raising of four of its 98 104 buildings in order to install stabilizing piers under the building slabs, the Company has relocated some of its tenants and has installed a venting system according to the TNRCC's specifications. The restabilization was substantially completed as of January 1998, at a total cost of approximately $550,000. The City of Austin will be responsible for monitoring the conditions of Montecito. All of the Owned Properties were subject to Phase I or similar environmental audits by independent environmental consultants prior to acquisition. The audits did not reveal, nor is the Company aware of, any environmental liability relating to such properties that would have a material adverse effect on the Company's business, assets or results of operations. However, such audits involve a number of judgments and it is possible that such audits did not reveal all environmental liabilities or that there are material environmental liabilities of which the Company is unaware. In addition, the Managed Properties may not have been subject to Phase I or similar environmental audits by independent environmental consultants. While the Company is not aware of any environmental liability that it believes would have a material adverse effect on its business, financial condition or results of operations relating to the Managed Properties, there can be no assurance that material environmental liabilities of which the Company is unaware do not exist at such properties. In October 1997, NHP received a letter (the "EPA Letter") from the U.S. Department of Justice ("DOJ") which stated that the U.S. Environmental Protection Agency ("EPA") has requested that the DOJ file a lawsuit against NHP alleging, among other things, that NHP violated the Clean Air Act, the National Recycling and Emissions Reduction Programs and associated regulations in connection with the employment of certain unlicensed personnel, maintenance and disposal of certain refrigerants, and record-keeping practices at two properties. A settlement in principle between NHP and EPA has been reached whereby NHP has agreed to pay a fine of less than $100,000, permit EPA to audit 40 NHP properties with respect to their use and disposal of such refrigerants, and continue to provide training to all maintenance workers with respect to the disposal of such refrigerants. A formal settlement agreement is expected to be executed in 1998. It is possible that the future EPA audits agreed to in the settlement could result in additional allegations by EPA of violations at such properties; however, based on the terms of the settlement agreement with DOJ, the Company anticipates that the fines, if any, resulting from such audits will be nominal. Uncertainties Regarding Status of Federal Subsidies The Company owns and/or manages approximately 44,000 units that are subsidized under Section 8 of the United States Housing Act of 1937, as amended ("Section 8"). These subsidies are generally provided pursuant to project-based Housing Assistance Payment Contracts ("HAP Contracts") between HUD and the owners of the properties or, with respect to a limited number of units managed by the Company, pursuant to vouchers received by tenants. On October 27, 1997, the President of the United States signed into law the Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act, the mortgage financing and HAP Contracts of certain properties assisted under Section 8, with rents above market levels and financed with HUD-insured mortgage loans, will be restructured by reducing subsidized rents to market levels, thereby reducing rent subsidies, and lowering required debt service payments as needed to ensure financial viability at the reduced rents and subsidy levels. The 1997 Housing Act retains project-based subsidies for most properties (properties in rental markets with limited supply, properties serving the elderly and certain other properties). The 1997 Housing Act phases out project-based subsidies on selected properties serving families not located in the rental markets with limited supply, converting such subsidies to a tenant-based subsidy. Under a tenant based system, rent vouchers would be issued to qualified tenants who then could elect to reside at a property of their choice, provided the tenant has the financial ability to pay the difference between the selected property's monthly rent and the value of the voucher, which would be established based on HUD's regulated fair market rent for the relevant geographical areas. The 1997 Housing Act provides that properties will begin the restructuring process in Federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final regulations implementing the 1997 Housing Act on or before October 27, 1998. Congress has elected to renew HAP Contracts expiring before October 1, 1998 for one year terms, generally at existing rents, so long as the properties remain in compliance with the HAP Contracts. While the Company does not expect the provisions of the 1997 Housing Act to result in a significant number of tenants relocating from properties 99 105 managed by the Company, there can be no assurance that the provisions will not significantly affect the Company's management portfolio. Furthermore, there can be no assurance that other changes in Federal housing subsidy will not occur. Any such changes could have an adverse effect on the Company's property management revenues. Year 2000 Compliance The Company's management has determined that it will be necessary to modify or replace certain accounting and operational software and hardware to enable its computer systems to operate properly subsequent to December 31, 1999. As a result, management has appointed a team of internal staff to research and manage the conversion or replacement of existing systems to comply with year 2000 requirements. The team's activities are designed to ensure that there is no adverse effect on the Company's core business operations, and that transactions with tenants, suppliers and financial institutions are fully supported. The Company utilizes numerous accounting and reporting software packages and computer hardware to conduct its business, some of which already comply with year 2000 requirements. Management estimates that the modification or replacement of non-compliant accounting and reporting software and hardware will total approximately $0.3 million. The Company's management also believes that certain of the AIMCO Properties possess operational systems (e.g. elevators, fire alarm and extinguishment systems and security systems) which also must be modified or replaced in order to function properly after December 31, 1999. Management is currently engaged in the identification of all non-compliant operational systems, and has not yet determined the estimated cost of replacing or modifying such systems. High Performance Units In January 1998, the AIMCO Operating Partnership sold 15,000 Class I High Performance Partnership Units (the "High Performance Units") to a joint venture formed by fourteen officers of the General Partner, SMP I, L.L.C., a Delaware limited liability company ("SMP"), and to three of AIMCO's non-employee directors for $2.1 million in cash. The High Performance Units have nominal value unless the total return of AIMCO's Class A Common Stock (dividend income plus share price appreciation), over the three year period ending December 31, 2000, is at least 30% and exceeds the industry average, as determined by a peer group index, by at least 15%. At the conclusion of the three year period, if the Total Return on AIMCO's Class A Common Stock satisfies these criteria, the holders of the High Performance Units will receive distributions and allocations of income and loss from the AIMCO Operating Partnership in the same amounts and at the same times as would holders of a number of OP Units equal to the quotient obtained by dividing (i) the product of (a) 15% of the amount by which the total return on AIMCO's Class A Common Stock over the three year period exceeds the greater of 115% of a peer group index or 30%, multiplied by (b) the weighted average market value of AIMCO's equity capitalization (including Class A Common Stock and OP Units), by (ii) the market value of one share of Class A Common Stock at the end of the three year period. The three year measurement period will be shortened in the event of a change of control of the Company. Unlike OP Units, the High Performance Units are not redeemable or convertible into Class A Common Stock unless a change of control of the Company occurs. Because there is substantial uncertainty that the High Performance Units will have more than nominal value due to the required performance criteria over the three year term, the AIMCO Operating Partnership has not recorded any value to the High Performance Units. If the measurement period would have ended June 30, 1998, the value of the High Performance Units (the product referred to in clause (i) above) would have been $17.2 million, and such High Performance Units would represent no dilutive effect on net income per share. Inflation Substantially all of the leases at the Company's apartment properties are for a period of six months or less, allowing, at the time of renewal, for adjustments in the rental rate and the opportunity to re-lease the apartment unit at the prevailing market rate. The short term nature of these leases generally serves to minimize the risk to the Company of the adverse effect of inflation and the Company does not believe that inflation has had a material adverse impact on its revenues. 100 106 FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS The following is a summary of certain federal income tax consequences resulting from the acquisition, holding, exchanging, and otherwise disposing of Class A Common Stock and the Preferred Stock (collectively, the Class A Common Stock and the Preferred Stock are referred to herein as the "AIMCO Stock"). This discussion is based upon the Code, the Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this Registration Statement and all of which are subject to change or differing interpretation, possibly retroactively. Such summary is also based on the assumptions that the operation of AIMCO, the AIMCO Operating Partnership and the limited liability companies and limited partnerships in which they own controlling interests (collectively, the "Subsidiary Partnerships") will be in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of federal income taxation which may be important to a particular investor in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States federal income tax purposes). This summary assumes that investors will hold their AIMCO Stock as "capital assets" (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Registration Statement. THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF AIMCO STOCK AND OF AIMCO'S ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST. GENERAL The REIT provisions of the Code are highly technical and complex. The following summary sets forth certain aspects of the provisions of the Code that govern the federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof, all of which are subject to change, possibly retroactively. AIMCO has elected to be taxed as a REIT under the Code commencing with its taxable year ending December 31, 1994, and AIMCO intends to continue such election. Although AIMCO believes, and it has received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Counsel") to the effect that, commencing with the AIMCO's initial taxable year ended December 31, 1994, AIMCO was organized in conformity with the requirements for qualification as a REIT, and that its actual method of operation has enabled, and its proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code, no assurance can be given that AIMCO has been or will remain so qualified. It must be emphasized that this opinion is based and conditioned upon certain assumptions and representations and covenants made by AIMCO as to factual matters (including representations of and covenants concerning AIMCO's properties and the past, present and future conduct of its business operations). The opinion is expressed as of its date and Counsel has no obligation to advise AIMCO of any subsequent change in the matters stated, represented or assumed or any subsequent change in the applicable law. Moreover, the opinion of counsel is conditioned on, and AIMCO's qualification and taxation as a REIT depends upon, AIMCO's ability to meet, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code as discussed below, the results of which have not been and will not be reviewed by Counsel. No assurance can be given that the actual results of AIMCO's operation for any one taxable year will satisfy such requirements. See " -- Failure to Qualify." An opinion of counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge AIMCO's eligibility for taxation as a REIT. 101 107 Provided AIMCO qualifies for taxation as a REIT, it will generally not be subject to federal corporate income tax on its net income that is currently distributed to its stockholders. This treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that generally results from investment in a corporation. However, notwithstanding AIMCO's qualification as a REIT, AIMCO will be subject to federal income tax as follows: First, AIMCO will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains. Second, under certain circumstances, AIMCO may be subject to the "alternative minimum tax" on its items of tax preference. Third, if AIMCO has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business other than foreclosure property), such income will be subject to a 100% tax. Fourth, if AIMCO should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), but has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on an amount equal to (a) the gross income attributable to the greater of the amount by which AIMCO fails the 75% or 95% test multiplied by (b) a fraction intended to reflect AIMCO's profitability. Fifth, if AIMCO should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year (other than certain long-term capital gains that AIMCO elects to retain and pay the tax thereon), and (iii) any undistributed taxable income from prior periods, AIMCO would be subjected to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. Sixth, if AIMCO acquires assets from a corporation that is not a REIT (a "C corporation") in a transaction in which the adjusted tax basis of the assets in the hands of AIMCO is determined by reference to the adjusted tax basis of such assets in the hands of the C corporation (such as the assets acquired from Insignia in the Insignia Merger), under Treasury Regulations not yet promulgated, the C corporation would be required to recognize any net Built-In Gain (as defined below) that would have been realized if the C corporation had liquidated on the day before the date of the transfer. Pursuant to IRS Notice 88-19, AIMCO may elect, in lieu of the treatment described above, to be subject to tax at the highest regular corporate tax rate on any gain it recognizes on the disposition of any such asset during the ten-year period beginning on the day on which AIMCO acquires such asset to the extent of the excess, if any, of the fair market value over the adjusted basis of such asset as of its acquisition date ("Built-in Gain"). AIMCO intends to make such an election and, therefore, will be taxed at the highest regular corporate rate on such Built-in Gain if, and to the extent, such assets are sold within the specified ten-year period. It should be noted that AIMCO has acquired (and may acquire in the future) a significant amount of assets with Built-in Gain and a taxable disposition by AIMCO of any of these assets within ten years of their acquisitions would subject AIMCO to tax under the foregoing rule. Seventh, AIMCO could be subject to foreign taxes on its investments and activities in foreign jurisdictions. In addition, AIMCO could also be subject to tax in certain situations and on certain transactions not presently contemplated. Requirements for Qualification The Code defines a REIT as a corporation, trust or association (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation, but for the special Code provisions applicable to REITs; (4) that is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities); and (7) which meets certain other tests described below (including with respect to the nature of its income and assets). The Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. The Charter provides certain restrictions regarding transfers of its shares, which provisions are intended to assist AIMCO in satisfying the share ownership requirements described in conditions (5) and (6) above. To monitor AIMCO's compliance with the share ownership requirements, AIMCO is required to maintain records regarding the actual ownership of its shares. To do so, AIMCO must demand written 102 108 statements each year from the record holders of certain percentages of its stock in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the REIT dividends). A list of those persons failing or refusing to comply with this demand must be maintained as part of AIMCO's records. A stockholder who fails or refuses to comply with the demand must submit a statement with its tax return disclosing the actual ownership of the shares and certain other information. In addition, a corporation may not elect to become a REIT unless its taxable year is the calendar year. AIMCO satisfies this requirement. Ownership of Partnership Interests In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share of the partnership's assets and to earn its proportionate share of the partnership's income. In addition, the assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of the gross income and asset tests applicable to REITs as described below. Thus, AIMCO's proportionate share of the assets, liabilities and items of income of the Subsidiary Partnerships generally will be treated as assets, liabilities and items of income of AIMCO for purposes of applying the REIT requirements described herein. A summary of certain rules governing the federal income taxation of partnerships and their partners is provided below in "Tax Aspects of AIMCO's Investments in Partnerships." Income Tests In order to maintain qualification as a REIT, AIMCO annually must satisfy two gross income requirements. First, at least 75% of AIMCO's gross income (excluding gross income from "prohibited transactions," i.e., certain sales of property held primarily for sale to customers in the ordinary course of business) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (including "rents from real property" and, in certain circumstances, interest) or from certain types of temporary investments. Second, at least 95% of AIMCO's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from such real property investments, and from dividends, interest and gain from the sale or disposition of stock or securities (or from any combination of the foregoing). Rents received by AIMCO through the Subsidiary Partnerships will qualify as "rents from real property" in satisfying the gross income requirements described above, only if several conditions are met, including the following. If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." Moreover, for rents received to qualify as "rents from real property," the REIT generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an "independent contractor" from which the REIT derives no revenue. However, AIMCO (or its affiliates) is permitted to directly perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, AIMCO (or its affiliates) may provide non-customary services to tenants of its properties without disqualifying all of the rent from the property if the payment for such services does not exceed 1% of the total gross income from the property. For purposes of this test, the income received from such non-customary services is deemed to be at least 150% of the direct cost of providing the services. Certain other subsidiaries of the Company that manage the Managed Properties (collectively, the "Management Subsidiaries") receive management fees and other income. A portion of such fees and other income accrue to AIMCO through distributions from the Management Subsidiaries that are classified as dividend income to the extent of the earnings and profits of the Management Subsidiaries. Such distributions will generally qualify under the 95% gross income test but not under the 75% gross income test. If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. 103 109 These relief provisions will be generally available if AIMCO's failure to meet such tests was due to reasonable cause and not due to willful neglect, AIMCO attaches a schedule of the sources of its income to its return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances AIMCO would be entitled to the benefit of these relief provisions. If these relief provisions are inapplicable to a particular set of circumstances involving AIMCO, AIMCO will not qualify as a REIT. As discussed above in "-- General," even where these relief provisions apply, a tax is imposed with respect to the excess net income. Asset Tests AIMCO, at the close of each quarter of its taxable year, must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of AIMCO's total assets must be represented by real estate assets (including its allocable share of real estate assets held by the Subsidiary Partnerships), certain stock or debt instruments purchased by AIMCO with new capital, cash, cash items and U.S. government securities. Second, not more than 25% of AIMCO's total assets may be represented by securities other than those in the 75% asset class. Third, of the investments included in the 25% asset class, the value of any one issuer's securities owned by AIMCO may not exceed 5% of the value of AIMCO's total assets, and AIMCO may not own more than 10% of any one issuer's outstanding voting securities. AIMCO indirectly owns interests in the Management Subsidiaries. As set forth above, the ownership of more than 10% of the voting securities of any one issuer by a REIT or the investment of more than 5% of the REIT's total assets in any one issuer's securities is prohibited by the asset tests. AIMCO believes that its indirect ownership interests in the Management Subsidiaries qualify under the asset tests set forth above. However, no independent appraisals have been obtained to support AIMCO's conclusions as to the value of the AIMCO Operating Partnership's total assets and the value of the AIMCO Operating Partnership's interest in the Management Subsidiaries and these values are subject to change in the future. Accordingly, there can be no assurance that the IRS will not contend that the AIMCO Operating Partnership's ownership interests in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT. AIMCO's indirect interests in the AIMCO Operating Partnership and other Subsidiary Partnerships are generally held through wholly owned corporate subsidiaries of AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning of the Code. Qualified REIT subsidiaries are not treated as separate entities from their parent REIT for federal income tax purposes. Instead, all assets, liabilities and items of income, deduction and credit of each qualified REIT subsidiary are treated as assets, liabilities and items of AIMCO. Each qualified REIT subsidiary therefore is not subject to federal corporate income taxation, although it may be subject to state or local taxation. In addition, AIMCO's ownership of the voting stock of each qualified REIT subsidiary does not violate the general restriction against ownership of more than 10% of the voting securities of any issuer. Annual Distribution Requirements In order for AIMCO to qualify as a REIT, AIMCO is required to distribute dividends (other than capital gain dividends) to its stockholders in an amount at least equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed without regard to the dividends paid deduction and AIMCO's net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of noncash income. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before AIMCO timely files its tax return for such year and if paid with or before the first regular dividend payment after such declaration. To the extent that AIMCO distributes at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax thereon at ordinary corporate tax rates. AIMCO may elect to retain, rather than distribute, its net long-term capital gains and pay tax on such gains. In such a case, AIMCO's stockholders would include their proportionate share of such undistributed long-term capital gains in income and receive a credit for their share of the tax paid by AIMCO. AIMCO's stockholders would then increase the adjusted basis of their AIMCO shares by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their shares. If AIMCO should fail to distribute during each calendar year at least the sum of 104 110 (i) 85% of its REIT ordinary income for such year and (ii) 95% of its REIT capital gain net income for such year (excluding retained long-term capital gains), and (iii) any undistributed taxable income from prior periods, AIMCO would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. AIMCO believes that it has made, and intends to make, timely distributions sufficient to satisfy these annual distribution requirements. It is possible that AIMCO, from time to time, may not have sufficient cash to meet the 95% distribution requirement due to timing differences between (i) the actual receipt of cash (including receipt of distributions from the AIMCO Operating Partnership) and (ii) the inclusion of certain items in income by AIMCO for federal income tax purposes. In the event that such timing differences occur, in order to meet the 95% distribution requirement, AIMCO may find it necessary to arrange for short-term, or possibly long-term, borrowings, or to pay dividends in the form of taxable distributions of property. Under certain circumstances, AIMCO may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to stockholders in a later year, which may be included in AIMCO's deduction for dividends paid for the earlier year. Thus, AIMCO may be able to avoid being taxed on amounts distributed as deficiency dividends; however, AIMCO will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends. Distribution of Acquired Earnings and Profits The Code provides that when a REIT acquires a corporation that is currently a C corporation (i.e., a corporation without a REIT election), the REIT may qualify as a REIT only if, as of the close of the year of acquisition, the REIT has no "earnings and profits" acquired from such C corporation. AIMCO has retained, and may in the future retain, independent certified public accountants to review the determination of certain acquired corporation's earnings and profits for purposes of this requirement. Any adjustments to an acquired corporation's income for taxable years ending on or before the closing of the acquisition, including as a result of an examination of its returns by the IRS, could affect the calculation of the acquired corporation's earnings and profits. Furthermore, the determination of earnings and profits requires the resolution of certain technical tax issues with respect to which there is no authority directly on point and, consequently, the proper treatment of these issues for earnings and profits purposes is not free from doubt. There can be no assurance that the IRS will not examine the tax returns of the acquired corporation and propose adjustments to increase its taxable income and therefore its earnings and profits. In this regard, the IRS can consider all taxable years of the acquired corporation as open for review for purposes of determining the amount of such earnings and profits. If AIMCO failed to distribute an amount equal to any such acquired corporation's earnings and profits effective on or before the end of the year of acquisition, AIMCO would not qualify as a REIT. Failure to Qualify If AIMCO fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, AIMCO will be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Distributions to stockholders in any year in which AIMCO fails to qualify will not be deductible by AIMCO nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to stockholders will be taxable as ordinary income, and, subject to certain limitations of the Code, corporate distributees may be eligible for the dividends received deduction. Unless AIMCO is entitled to relief under specific statutory provisions, AIMCO would also be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances AIMCO would be entitled to such statutory relief. TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS General Substantially all of AIMCO's investments are held indirectly through the AIMCO Operating Partnership. In general, partnerships are "pass-through" entities that are not subject to federal income tax. Rather, 105 111 partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject to tax thereon, without regard to whether the partners receive a distribution from the partnership. AIMCO will include in its income its proportionate share of the foregoing partnership items for purposes of the various REIT income tests and in the computation of its REIT taxable income. Moreover, for purposes of the REIT asset tests, AIMCO will include its proportionate share of assets held by the Subsidiary Partnerships. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- General." Entity Classification AIMCO's direct and indirect investment in partnerships involves special tax considerations, including the possibility of a challenge by the IRS of the status of any of the Subsidiary Partnerships as a partnership (as opposed to an association taxable as a corporation) for federal income tax purposes. If any of these entities were treated as an association for federal income tax purposes, it would be subject to an entity-level tax on its income. In such a situation, the character of AIMCO's assets and items of gross income would change and could preclude AIMCO from satisfying the asset tests and the income tests (see "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Asset Tests" and "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and in turn could prevent AIMCO from qualifying as a REIT. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify" above for a discussion of the effect of AIMCO's failure to meet such tests for a taxable year. In addition, any change in the status of any of the Subsidiary Partnerships for tax purposes might be treated as a taxable event, in which case AIMCO might incur a tax liability without any related cash distributions. Tax Allocations with Respect to the Properties Under the Code and the Treasury Regulations, income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in a manner such that the contributing partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution, and the adjusted tax basis of such property at the time of contribution (a "Book -- Tax Difference"). Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. See "-- Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership." The AIMCO Operating Partnership was formed by way of contributions of appreciated property (including certain of the Owned Properties). Consequently, allocations must be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership that holds appreciated property, the Treasury Regulations provide for a similar allocation of such items to the other partners. These rules apply to the contribution by AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any offerings of its stock. In general, certain OP Unitholders will be allocated lower amounts of depreciation deductions for tax purposes and increased taxable income and gain on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships of the contributed properties. This will tend to eliminate the Book-Tax Difference over the life of these partnerships. However, the special allocations do not always entirely rectify the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover basis of the contributed properties in the hands of the AIMCO Operating Partnership or other Subsidiary Partnerships may cause AIMCO to be allocated lower depreciation and other deductions, and possibly greater amounts of taxable income in the event of a sale of such contributed assets in excess of the economic or book income allocated to it as a result of such sale. This may cause AIMCO to recognize taxable income in excess of cash proceeds, which might adversely affect AIMCO's ability to comply with the REIT distribution requirements. See "-- Federal Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution Requirements." 106 112 With respect to any property purchased or to be purchased by any of the Subsidiary Partnerships (other than through the issuance of OP Units) subsequent to the formation of AIMCO, such property will initially have a tax basis equal to its fair market value and the special allocation provisions described above will not apply. Sale of the Properties AIMCO's share of any gain realized by the AIMCO Operating Partnership or any other Subsidiary Partnership on the sale of any property held as inventory or primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. See "-- Taxation of AIMCO and AIMCO Stockholders -- General -- Income Tests." Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a partnership's trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. In general, the AIMCO Operating Partnership and the other Subsidiary Partnerships intend to hold the Owned Properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning and operating the Owned Properties (and other apartment properties) and to make such occasional sales of the Owned Properties, including peripheral land, as are consistent with AIMCO's investment objectives. TAXATION OF MANAGEMENT SUBSIDIARIES A portion of the amounts to be used to fund distributions to stockholders is expected to come from distributions made by the Management Subsidiaries to the AIMCO Operating Partnership, and interest paid by the Management Subsidiaries on certain notes held by the AIMCO Operating Partnership. In general, the Management Subsidiaries pay federal, state and local income taxes on their taxable income at normal corporate rates. Any federal, state or local income taxes that the Management Subsidiaries are required to pay will reduce AIMCO's cash flow from operating activities and its ability to make payments to holders of its securities. TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS Distributions Provided AIMCO qualifies as a REIT, distributions made to AIMCO's taxable domestic stockholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be taken into account by them as ordinary income and will not be eligible for the dividends received deduction for corporations. Distributions (and retained long-term capital gains) that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent that they do not exceed AIMCO's actual net capital gain for the taxable year) without regard to the period for which the stockholder has held its stock. However, corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. In addition, certain capital gain dividends may be taxed at different rates, depending on the type of gain by AIMCO. Distributions in excess of current and accumulated earnings and profits will not be taxable to a stockholder to the extent that they do not exceed the adjusted basis of the stockholder's shares in respect of which the distributions were made, but rather will reduce the adjusted basis of such shares. To the extent that such distributions exceed the adjusted basis of a stockholder's shares in respect of which the distributions were made, they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for one year or less) provided that the shares are a capital asset in the hands of the stockholder. In addition, any dividend declared by AIMCO in October, November or December of any year and payable to a stockholder of record on a specified date in any such month will be treated as both paid by AIMCO and received by the stockholder on December 31 of such year, provided that the dividend is actually paid by AIMCO during January of the following calendar year. Stockholders may not include in their individual income tax returns any net operating losses or capital losses of AIMCO. 107 113 Dispositions of AIMCO Stock In general, capital gains recognized by individuals and other non-corporate taxpayers upon the sale or disposition of AIMCO Stock will be subject to a maximum federal income tax rate of 20% if the AIMCO Stock is held for more than 12 months and will be taxed at ordinary income rates if the AIMCO Stock is held for 12 months or less. Capital losses recognized by a stockholder upon the disposition of AIMCO Stock held for more than one year at the time of disposition will be a long-term capital loss. In addition, any loss upon a sale or exchange of shares of AIMCO Stock by a stockholder who has held such shares for six months or less (after applying certain holding period rules) will be treated as a long-term capital loss to the extent of distributions from AIMCO required to be treated by such stockholder as long-term capital gain. A redemption of the Preferred Stock will be treated under Section 302 of the Code as a dividend subject to tax at ordinary income tax rates (to the extent of AIMCO's current or accumulated earnings and profits), unless the redemption satisfies certain tests set forth in Section 302(b) of the Code enabling the redemption to be treated as a sale or exchange of the Preferred Stock. The redemption will satisfy such test if it (i) is "substantially disproportionate" with respect to the holder, (ii) results in a "complete termination" of the holder's stock interest in AIMCO, or (iii) is "not essentially equivalent to a dividend" with respect to the holder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests have been met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code is satisfied with respect to any particular holder of the Preferred Stock will depend upon the facts and circumstances as of the time the determination is made, prospective investors are advised to consult their own tax advisors to determine such tax treatment. If a redemption of the Preferred Stock is treated as a distribution that is taxable as a dividend, the amount of the distribution would be measured by the amount of cash and the fair market value of any property received by the stockholder. The stockholder's adjusted tax basis in such redeemed Preferred Stock would be transferred to the holder's remaining stockholdings in AIMCO. If, however, the stockholder has no remaining stockholdings in AIMCO, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely. TAXATION OF FOREIGN STOCKHOLDERS The following is a discussion of certain anticipated U.S. federal income and estate tax consequences of the ownership and disposition of AIMCO Stock applicable to Non-U.S. Holders of AIMCO Stock. A "Non-U.S. Holder" is any person other than (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. The discussion is based on current law and is for general information only. The discussion addresses only certain and not all aspects of U.S. federal income and estate taxation. Ordinary Dividends The portion of dividends received by Non-U.S. Holders payable out of AIMCO's earnings and profits which are not attributable to capital gains of AIMCO and which are not effectively connected with a U.S. trade or business of the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty). In general, Non-U.S. Holders will not be considered engaged in a U.S. trade or business solely as a result of their ownership of AIMCO Stock. In cases where the dividend income from a Non-U.S. Holder's investment in AIMCO Stock is (or is treated as) effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the same manner as U.S. Holders are taxed with respect to such dividends (and may also be subject to the 30% branch profits tax in the case of a Non-U.S. Holder that is a corporation). 108 114 Non-Dividend Distributions Unless AIMCO Stock constitutes a United States Real Property Interest (a "USRPI") within the meaning of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), distributions by AIMCO which are not dividends out of the earnings and profits of AIMCO will not be subject to U.S. income or withholding tax. If it cannot be determined at the time a distribution is made whether or not such distribution will be in excess of current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the Non-U.S. Holder may seek a refund of such amounts from the IRS if it is subsequently determined that such distribution was, in fact, in excess of current and accumulated earnings and profits of AIMCO. If AIMCO Stock constitutes a USRPI, such distributions will be subject to 10% withholding and taxed pursuant to FIRPTA at a rate of 35% to the extent such distributions exceed a stockholder's basis in his or her AIMCO Stock. Capital Gain Dividends Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs such as the properties beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered effectively connected with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether such distribution is designated as a capital gain dividend. In addition, AIMCO will be required to withhold tax equal to 35% of the amount of dividends to the extent such dividends constitute USRPI Capital Gains. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of Non-U.S. Holder that is a corporation. Dispositions of AIMCO Stock Unless AIMCO Stock constitutes a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. The stock will not constitute a USRPI if AIMCO is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to continue to be, a domestically controlled REIT. If AIMCO is, and continues to be, a domestically controlled REIT, the sale of AIMCO Stock should not be subject to taxation under FIRPTA. Because various classes of stock of AIMCO (including the Class A Common Stock) are publicly traded, however, no assurance can be given that AIMCO is or will continue to be a domestically controlled REIT. If AIMCO does not constitute a domestically controlled REIT, a Non-U.S. Holder's sale of stock of AIMCO generally will still not be subject to tax under FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the NYSE, on which AIMCO Class A Common Stock is listed) and the selling Non-U.S. Holder held 5% or less of such class of AIMCO stock at all times during a specified testing period or (ii) the stock is not regularly traded on an established securities market and is convertible into stock that is so regularly traded and the value of such convertible stock held by the selling Non-U.S. Holder at all times during a specified testing period is less than or equal to the value of 5% of the regularly traded class of stock into which such stock is convertible. If gain on the sale of AIMCO Stock were subject to taxation under FIRPTA, the Non-U.S. Holder generally would be subject to the same treatment as a U.S. stockholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals) and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS. Gain from the sale of AIMCO Stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in two cases. First, if the Non-U.S. Holder's investment in the AIMCO Stock is effectively connected with a U.S. trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S. stockholder with respect to such gain. 109 115 Second, if the Non-U.S. Holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States, the nonresident alien individual will be subject to a 30% tax on the individual's capital gain. Estate Tax AIMCO Stock owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. Such individual's estate may be subject to U.S. federal estate tax on the property includible in the estate for U.S. federal estate tax purposes. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING AIMCO will report to its U.S. stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at the rate of 31% with respect to distributions paid unless such holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A stockholder who does not provide AIMCO with his correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. In addition, AIMCO may be required to withhold a portion of capital gain distributions to any Non-U.S. Holders who fail to certify their foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding the backup withholding rules as applied to Non-U.S. Holders. Those final Treasury Regulations alter the current system of backup withholding compliance and will be effective for payments made after December 31, 1999. Prospective investors in AIMCO Stock should consult their tax advisors regarding the application of these Treasury Regulations. TAXATION OF TAX-EXEMPT STOCKHOLDERS Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts ("Exempt Organizations"), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income ("UBTI"). While many investments in real estate generate UBTI, the IRS has ruled that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Based on that ruling, amounts distributed by AIMCO to Exempt Organizations should generally not constitute UBTI. However, if an Exempt Organization finances its acquisition of the AIMCO Stock with debt, a portion of its income from AIMCO will constitute UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the Code are subject to different UBTI rules, which generally will require them to characterize distributions from AIMCO as UBTI. In addition, in certain circumstances, a pension trust that owns more than 10% of AIMCO's stock is required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an unrelated trade or business (determined as if AIMCO were a pension trust) divided by the gross income of AIMCO for the year in which the dividends are paid. The UBTI rule applies to a pension trust holding more than 10% of AIMCO's stock only if (i) the UBTI Percentage is at least 5%, (ii) AIMCO qualifies as a REIT by reason of the modification of the 5/50 Rule that allows the beneficiaries of the pension trust to be treated as holding shares of AIMCO in proportion to their actuarial interest in the pension trust, and (iii) either (A) one pension trust owns more than 25% of the value of AIMCO's stock or (B) a group of pension trusts each individually holding more than 10% of the value of AIMCO's stock collectively owns more that 50% of the value of 110 116 AIMCO's stock. The restrictions on ownership and transfer of AIMCO's stock should prevent an Exempt Organization from owning more than 10% of the value of AIMCO's stock. FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS The following is a summary of certain federal income tax consequences resulting from the acquisition, holding, exchanging, and otherwise disposing of OP Units. This discussion is based upon the Code, the Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this Registration Statement and all of which are subject to change or differing interpretation, possibly retroactively. Such summary is also based on the assumptions that the operation of AIMCO, the AIMCO Operating Partnership and the Subsidiary Partnerships will be in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of federal income taxation which may be important to a particular investor in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for Federal income tax purposes). This summary assumes that investors will hold their OP Units as "capital assets" (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Registration Statement. THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OP UNITS DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS AND OF AIMCO'S ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE INVESTMENT TRUST. PARTNERSHIP STATUS AIMCO has received an opinion of Counsel to the effect that, for federal income tax purposes the AIMCO Operating Partnership is classified as a partnership and not as an association taxable as a corporation. It must be emphasized that this opinion of Counsel is based on and conditioned upon certain assumptions and representations and on opinions of local counsel with respect to matters of local law. The opinion is expressed as of its date and Counsel has no obligation to advise AIMCO of any subsequent change in matters stated, represented or assumed or any subsequent change in the applicable law. An opinion of Counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge the status of the AIMCO Operating Partnership as a partnership. Some partnerships are, for federal income tax purposes, characterized not as partnerships but as associations taxable as corporations or as "publicly traded partnerships" taxable as corporations. A partnership will be classified as a publicly traded partnership if interests therein are traded on an "established securities market" or are "readily tradable" on a "secondary market (or the substantial equivalent thereof)." The AIMCO Operating Partnership believes and intends to take the position that the AIMCO Operating Partnership should not be classified as a publicly traded partnership because (i) the OP Units are not traded on an established securities market and (ii) the OP Units should not be considered readily tradable on a secondary market or the substantial equivalent thereof. The determination of whether interests in a partnership are readily tradable on a secondary market or the substantial equivalent thereof, however, depends on various facts and circumstances (including facts that are not within the control of the AIMCO Operating Partnership). Treasury Regulations generally effective for taxable years beginning after December 31, 1995 (the "PTP Regulations") provide limited safe harbors, which, if satisfied, will prevent a partnership's interests from being treated as readily tradable on a secondary market or the substantial equivalent thereof. Under a 111 117 grandfather rule, certain existing partnerships may rely on safe harbors contained in IRS Notice 88-75 rather than on the safe harbors contained in the PTP Regulations for all taxable years of the partnership beginning before January 1, 2006. The AIMCO Operating Partnership believes that it is subject to such grandfather rule and that it cannot rely on the safe harbors contained in the PTP Regulations. The AIMCO Operating Partnership may not have satisfied any of the safe harbors in Notice 88-75 in its previous tax years. In addition, because the AIMCO Operating Partnership's ability to satisfy a safe harbor in Notice 88-75 (or to the extent applicable, a safe harbor in the PTP Regulations) may involve facts that are not within its control, it is not possible to predict whether the AIMCO Operating Partnership will satisfy a safe harbor in future tax years. The safe harbors in Notice 88-75 are not intended to be substantive rules for the determination of whether partnership interests are readily tradable on a secondary market or the substantial equivalent thereof, and consequently, the failure to meet these safe harbors will not necessarily cause the AIMCO Operating Partnership to be treated as a publicly traded partnership. No assurance can be given, however, that the IRS will not assert that partnerships such as the AIMCO Operating Partnership constitute publicly traded partnerships, or that facts and circumstances will not develop which could result in the AIMCO Operating Partnership being treated as a publicly traded partnership. If the AIMCO Operating Partnership were classified as a publicly traded partnership, it would nevertheless not be taxable as a corporation as long as 90% or more of its gross income consists of "qualifying income." In general, qualifying income includes interest, dividends, real property rents (as defined by section 856 of the Code) and gain from the sale or disposition of real property. The AIMCO Operating Partnership believes that more than 90% of its gross income consists of qualifying income and expects that more than 90% of its gross income in future tax years will consist of qualifying income. In such event, even if the AIMCO Operating Partnership were characterized as a publicly traded partnership, it would not be taxable as a corporation. If the AIMCO Operating Partnership were characterized as a publicly traded partnership, however, each OP Unitholder would be subject to special rules under section 469 of the Code. See "Limitations on Deductibility of Losses -- Passive Activity Loss Limitation." No assurance can be given that the actual results of the AIMCO Operating Partnership's operations for any one taxable year will enable it to satisfy the qualifying income exception. If the AIMCO Operating Partnership were classified as an association or publicly traded partnership taxable as a corporation (because it did not meet the qualifying income exception discussed above), it would be subject to tax at the entity level as a regular corporation and OP Unitholders would be subject to tax in the same manner as stockholders of a corporation. Thus, the AIMCO Operating Partnership would be subject to federal tax (and possibly state and local taxes) on its net income, determined without reduction for any distributions made to the OP Unitholders, at regular federal corporate income tax rates, thereby reducing the amount of any cash available for distribution to the OP Unitholders, which reduction could also materially and adversely impact the liquidity and value of the OP Units. In addition, the AIMCO Operating Partnership's items of income, gain, loss, deduction and expense would not be passed through to the OP Unitholders and the OP Unitholders would not be subject to tax on the income earned by the AIMCO Operating Partnership. Distributions received by an OP Unitholder from the AIMCO Operating Partnership, however, would be treated as dividend income for federal income tax purposes, subject to tax as ordinary income to the extent of current and accumulated earnings and profits of the AIMCO Operating Partnership, and the excess, if any, as a nontaxable return of capital to the extent of the OP Unitholder's adjusted tax basis in his AIMCO Operating Partnership interest (without taking into account Partnership liabilities), and thereafter as gain from the sale of a capital asset. Characterization of the AIMCO Operating Partnership as an association or publicly traded partnership taxable as a corporation would also result in the termination of AIMCO's status as a REIT for federal income tax purposes, which would have a material adverse impact on AIMCO. See "Federal Income Taxation of AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's Investments in Partnerships." No assurances can be given that the IRS would not challenge the status of the AIMCO Operating Partnership as a "partnership" which is not "publicly traded" for federal income tax purposes or that a court would not reach a result contrary to such positions. Accordingly, each prospective investor is urged to consult his tax advisor regarding the classification and treatment of the AIMCO Operating Partnership as a "partnership" for federal income tax purposes. 112 118 The following discussion assumes that the AIMCO Operating Partnership is, and will continue to be, classified and taxed as a partnership for federal income tax purposes. TAXATION OF OP UNITHOLDERS In general, a partnership is treated as a "pass-through" entity for federal income tax purposes and is not itself subject to federal income taxation. Each partner of a partnership, however, is subject to tax on his allocable share of partnership tax items, including partnership income, gains, losses, deductions, and expenses ("Partnership Tax Items") for each taxable year of the partnership ending within or with such taxable year of the partner, regardless of whether he receives any actual distributions from the partnership during the taxable year. Generally, the characterization of any particular Partnership Tax Item is determined at the partnership, rather than at the partner level, and the amount of a partner's allocable share of such item is governed by the terms of the partnership agreement. No federal income tax will be payable by the AIMCO Operating Partnership. Instead, each OP Unitholder will be (i) required to include in income his allocable share of any AIMCO Operating Partnership income or gains and (ii) entitled to deduct his allocable share of any AIMCO Operating Partnership deductions or losses, but only to the extent of the OP Unitholder's adjusted tax basis in his AIMCO Operating Partnership interest and subject to the "at risk" and "passive activity loss" rules discussed below under the heading "Limitations on the Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO Operating Partnership's taxable income may exceed the cash distributions to the OP Unitholder for any year if the AIMCO Operating Partnership retains its profits rather than distributing them. ALLOCATIONS OF AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES For federal income tax purposes, an OP Unitholder's allocable share of the AIMCO Operating Partnership's Partnership Tax Items will be determined by the AIMCO Operating Partnership Agreement if such allocations either have "substantial economic effect" or are determined to be in accordance with the OP Unitholder's interests in the AIMCO Operating Partnership. The manner in which Partnership Tax Items of the AIMCO Operating Partnership are allocated is described above under the heading "Description of OP Units--Allocations of Net Income and Net Loss." If the allocations provided by the AIMCO Operating Partnership Agreement were successfully challenged by the IRS, the redetermination of the allocations to a particular OP Unitholder for federal income tax purposes may be less favorable than the allocation set forth in the AIMCO Operating Partnership Agreement. TAX BASIS OF A PARTNERSHIP INTEREST A partner's adjusted tax basis in his partnership interest is relevant, among other things, for determining (i) gain or loss upon a taxable disposition of his partnership interest, (ii) gain upon the receipt of partnership distributions, and (iii) the limitations imposed on the use of partnership deductions and losses allocable to such partner. Generally, the adjusted tax basis of an OP Unitholder's interest in the AIMCO Operating Partnership is equal to (A) the sum of the adjusted tax basis of the property contributed by the OP Unitholder to the AIMCO Operating Partnership in exchange for an interest in the AIMCO Operating Partnership and the amount of cash, if any, contributed by the OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership distributions, deductions, and losses, (C) increased by the OP Unitholder's allocable share of AIMCO Operating Partnership income and gains, and (D) increased by the OP Unitholder's allocable share of the AIMCO Operating Partnership liabilities and decreased by the OP Unitholder's liabilities assumed by the AIMCO Operating Partnership. CASH DISTRIBUTIONS Cash distributions received from a partnership do not necessarily correlate with income earned by the partnership as determined for federal income tax purposes. Thus, an OP Unitholder's federal income tax liability in respect of his allocable share of the AIMCO Operating Partnership taxable income for a particular 113 119 taxable year may exceed the amount of cash, if any, received by the OP Unitholder from the AIMCO Operating Partnership during such year. If cash distributions, including a "deemed" cash distribution as discussed below, received by an OP Unitholder in any taxable year exceed his allocable share of the AIMCO Operating Partnership taxable income for the year, the excess will constitute, for federal income tax purposes, a return of capital to the extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating Partnership interest. Such return of capital will not be includible in the taxable income of the OP Unitholder, for federal income tax purposes, but it will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis in his AIMCO Operating Partnership interest is reduced to zero, a subsequent cash distribution received by the OP Unitholder will be subject to tax as capital gain and/or ordinary income, but only if, and to the extent that, such distribution exceeds the subsequent positive adjustments, if any, to the tax basis of the OP Unitholder's AIMCO Operating Partnership interest as determined at the end of the taxable year during which such distribution is received. A decrease in an OP Unitholder's share of the AIMCO Operating Partnership liabilities resulting from the payment or other settlement of such liabilities is generally treated, for federal income tax purposes, as a deemed cash distribution. A decrease in an OP Unitholder's percentage interest in the AIMCO Operating Partnership, because of the issuance by the AIMCO Operating Partnership of additional OP Units, or otherwise, will decrease an OP Unitholder's share of nonrecourse liabilities of the AIMCO Operating Partnership, if any, and thus, will result in a corresponding deemed distribution of cash. A non-pro rata distribution (or deemed distribution) of money or property may result in ordinary income to an OP Unitholder, regardless of such OP Unitholder's tax basis in his OP Units, if the distribution reduces such OP Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets." "Section 751 Assets" are defined by the Code to include "unrealized receivables" or "substantially appreciated inventory." For this purpose, inventory is substantially appreciated if its value exceeds 120% of its adjusted basis. Among other things, "unrealized receivables" include amounts attributable to previously claimed depreciation deductions on certain types of property. To the extent that such a reduction in an OP Unitholder's share of Section 751 Assets occurs, the AIMCO Operating Partnership will be deemed to have distributed a proportionate share of the Section 751 Assets to the OP Unitholder followed by a deemed exchange of such assets with the AIMCO Operating Partnership in return for the non-pro rata portion of the actual distribution made to such OP Unitholder. This deemed exchange will generally result in the realization of ordinary income under Section 751(b) by the OP Unitholder. Such income will equal the excess of (1) the non-pro rata portion of such distribution over (2) the OP Unitholder's tax basis in such OP Unitholder's share of such Section 751 Assets deemed relinquished in the exchange. TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE AIMCO OPERATING PARTNERSHIP Generally, Section 721 of the Code provides that neither the Contributing Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for federal income tax purposes, upon a contribution of property to the AIMCO Operating Partnership in exchange for OP Units. Notwithstanding this general rule of nonrecognition, the Contributing Partner may recognize a gain where the property transferred is subject to liabilities, or the AIMCO Operating Partnership assumes liabilities in connection with a transfer of property, and the amount of such liabilities exceeds the amount of the AIMCO Operating Partnership liabilities allocated to the Contributing Partner as determined immediately after the transfer. Such excess is treated by the Contributing Partner, for federal income tax purposes, as the receipt of a deemed distribution of cash to the Contributing Partner from the AIMCO Operating Partnership. If a person transfers to the AIMCO Operating Partnership an interest in another partnership (the "Underlying Partnership") in exchange for an OP Unit, the person will be treated, for federal income tax purposes, as having transferred to the AIMCO Operating Partnership his allocable share of the liabilities of the Underlying Partnership, which could result in, or increase the amount of, a deemed cash distribution. As discussed above, such deemed cash distributions are generally treated as a nontaxable return of capital to the extent of the Contributing Partner's adjusted tax basis in his OP Units and thereafter as gain from the sale of such partnership interest. 114 120 If a Contributing Partner receives or is deemed to receive for federal income tax purposes, cash in addition to OP Units upon the contribution of property to the AIMCO Operating Partnership, the transaction will likely be treated as part contribution of property and part sale of property. In such event, the Contributing Partner will recognize gain or loss with respect to the portion of the property that is deemed sold to the AIMCO Operating Partnership. If a Contributing Partner transfers property to the AIMCO Operating Partnership in exchange for an OP Unit and the adjusted tax basis of such property differs from its fair market value, AIMCO Operating Partnership Tax Items must be allocated in a manner such that the Contributing Partner is charged with, or benefits from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution. Where a partner contributes cash to a partnership that holds appreciated property, the Treasury Regulations provide for a similar allocation of such items to the other partners. These rules may apply to a contribution by AIMCO to the AIMCO Operating Partnership of cash proceeds received by AIMCO from the offering of its stock. Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the OP Unitholders. The general purpose underlying this provision is to specially allocate certain Partnership Tax Items in order to place both the noncontributing and Contributing Partners in the same tax position that they would have been in had the Contributing Partner contributed property with an adjusted tax basis equal its fair market value. Treasury Regulations provide the AIMCO Operating Partnership with several alternative methods and allow the AIMCO Operating Partnership to adopt any other reasonable method to make allocations to reduce or eliminate Book-Tax Differences. The AIMCO GP, in its discretion and in a manner consistent with the Treasury Regulations, will select and adopt a method of allocating AIMCO Operating Partnership Tax Items, including the remedial allocation method, for purposes of eliminating such disparities. In general, certain OP Unitholders will be allocated lower amounts of depreciation deductions for tax purposes and increased amounts of taxable income and gain on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships of the contributed properties. Accordingly, in the event the AIMCO Operating Partnership disposes of contributed property, income attributable to the Book-Tax Difference of such contributed property generally will be allocated to the Contributing Partner, and the other OP Unitholders generally will be allocated only their share of gains attributable to appreciation, if any, occurring after the contribution of the contributed property. These incremental allocations of income will not result in additional cash distributions to the Contributing Partner, with the result that the Contributing Partner may not necessarily receive cash sufficient to pay the taxes attributable to such income. These allocations will tend to eliminate the Book-Tax Differences with respect to the contributed property over the life of the AIMCO Operating Partnership. However, the special allocation rules of Section 704(c) do not always entirely rectify the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Thus, the carryover basis of the contributed property in the hands of the AIMCO Operating Partnership may cause a noncontributing OP Unitholder to be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to such OP Unitholder if the contributed property had a tax basis equal to its fair market value at the time of contribution, and possibly to be allocated taxable gain in the event of a sale of the contributed property in excess of the economic or book income allocated to it as a result of such sale. This may cause noncontributing OP Unitholders to recognize taxable income in excess of cash proceeds. LIMITATIONS ON DEDUCTIBILITY OF LOSSES Basis Limitation. To the extent that an OP Unitholder's allocable share of AIMCO Operating Partnership deductions and losses exceeds his adjusted tax basis in his AIMCO Operating Partnership interest at the end of the of the taxable year in which the losses and deductions flow through, the excess losses and deductions cannot be utilized, for federal income tax purposes, by the OP Unitholder in such year. The excess losses and deductions may, however, be utilized in the first succeeding taxable year in which, and to the extent that, there is an increase in the tax basis of the AIMCO Operating Partnership interest held by such OP Unitholder, but only to the extent permitted under the "at risk" and "passive activity loss" rules discussed below. 115 121 "At Risk" Limitation. Under the "at risk" rules of section 465 of the Code, a noncorporate taxpayer and a closely held corporate taxpayer are generally not permitted to claim a deduction, for federal income tax purposes, in respect of a loss from an activity, whether conducted directly by the taxpayer or through an investment in a partnership, to the extent that the loss exceeds the aggregate dollar amount which the taxpayer has "at risk" in such activity at the close of the taxable year. To the extent that losses are not permitted to be used in any taxable year, such losses may be carried over to subsequent taxable years and may be claimed as a deduction by the taxpayer if, and to the extent that, the amount which the taxpayer has "at risk" is increased. Provided certain requirements are met, the at risk rules generally do not apply to losses arising from any activity which constitutes "the holding of real property," which the holding of an OP Unit generally should constitute. "Passive Activity Loss" Limitation. The passive activity loss rules of section 469 of the Code limit the use of losses derived from passive activities, which generally includes an investment in limited partnership interests such as the OP Units. If an investment in an OP Unit is treated as a passive activity, an OP Unitholder who is an individual investor, as well as certain other types of investors, would not be able to use losses from the AIMCO Operating Partnership to offset nonpassive activity income, including salary, business income, and portfolio income (e.g., dividends, interest, royalties, and gain on the disposition of portfolio investments) received during the taxable year. Passive activity losses that are disallowed for a particular taxable year may, however, be carried forward to offset passive activity income earned by the OP Unitholder in future taxable years. In addition, such disallowed losses may be claimed as a deduction, subject to the basis and at risk limitations discussed above, upon a taxable disposition of the Unitholder's entire interest in the AIMCO Operating Partnership, regardless of whether such OP Unitholder has received any passive activity income during the year of disposition. If the AIMCO Operating Partnership were characterized as a publicly traded partnership, each OP Unitholder would be required to treat any loss derived from the AIMCO Operating Partnership separately from any income or loss derived from any other publicly traded partnership, as well as from income or loss derived from other passive activities. In such case, any net losses or credits attributable to the AIMCO Operating Partnership which are carried forward may only be offset against future income of the AIMCO Operating Partnership. Moreover, unlike other passive activity losses, suspended losses attributable to the AIMCO Operating Partnership would only be allowed upon the complete disposition of the OP Unitholder's "entire interest" in the AIMCO Operating Partnership (rather than upon the disposition of an interest in an "activity"). SECTION 754 ELECTION The AIMCO Operating Partnership has made the election permitted by Section 754 of the Code. Such election is irrevocable without the consent of the IRS. The election will generally permit a purchaser of OP Units, such as AIMCO when it acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis in the AIMCO Operating Partnership's properties pursuant to Section 743(b) of the Code to fair market value (as reflected by the value of consideration paid for the OP Units), as if such purchaser had acquired a direct interest in the AIMCO Operating Partnership assets. The Section 743(b) adjustment is attributed solely to a purchaser of OP Units and is not added to the bases of the AIMCO Operating Partnership's assets associated with all of the OP Unitholders in the AIMCO Operating Partnership. DEPRECIATION Section 168(i)(7) of the Code provides that in the case of property transferred to a partnership in a Section 721 transaction, the transferee shall be treated as the transferor for purposes of computing the depreciation deduction with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. The effect of this rule would be to continue the historic basis, placed in service dates and methods with respect to the depreciation of the properties being contributed by a Contributing Partner to the AIMCO Operating Partnership in exchange for OP Units. However, an acquiror of OP Units that obtains a Section 743(b) adjustment by reason of such acquisition (see "Section 754 116 122 Election," above) generally will be allowed depreciation with respect to such adjustment beginning as of the date of the exchange as if it were new property placed in service as of that date. SALE, REDEMPTION OR EXCHANGE OF OP UNITS An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a redemption of an OP Unit for cash, an exchange of an OP Unit for shares of AIMCO Stock, or other taxable disposition of an OP Unit. Gain or loss recognized upon a sale or exchange of an OP Unit will be equal to the difference between (i) the amount realized in the transaction (i.e., the sum of the cash and the fair market value of any property received for the OP Unit) plus the amount of AIMCO Operating Partnership liabilities allocable to the OP Unit at such time and (ii) the OP Unitholder's tax basis in the OP Unit disposed of, which tax basis will be adjusted for the OP Unitholder's allocable share of the AIMCO Operating Partnership's income or loss for the taxable year of the disposition. In the case of a gift of an OP Unit, an OP Unitholder may be deemed to have an amount realized equal to the amount of the AIMCO Operating Partnership's nonrecourse liabilities allocable to such OP Unit, and to the extent that the amount realized exceeds the OP Unitholder's basis for the OP Unit disposed of, such OP Unitholder will recognize gain for federal income tax purposes. The tax liability resulting from the gain recognized on a disposition of an OP Unit could exceed the amount of cash and the fair market value of property received. If the AIMCO Operating Partnership redeems an OP Unitholder's OP Units for cash (which is not contributed by AIMCO to effect the redemption), the tax consequences generally would be the same as described in the preceding paragraphs, except that if the AIMCO Operating Partnership redeems less than all of an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable loss and would recognize taxable gain only to the extent that the cash, plus the amount of AIMCO Operating Partnership liabilities allocable to the redeemed OP Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP Unitholder's OP Units immediately before the redemption. Capital gains recognized by individuals and certain other noncorporate taxpayers upon the sale or disposition of an OP Unit will be subject to a maximum federal income tax rate of 20% if the OP Unit is held for more than 12 months and will be taxed at ordinary income tax rates if the OP Unit is held for 12 months or less. Generally, gain or loss recognized by an OP Unitholder on the sale or other taxable disposition of an OP Unit will be taxable as capital gain or loss. However, to the extent that the amount realized upon the sale or other taxable disposition of an OP Unit attributable to an OP Unitholder's share of "unrealized receivables" of the AIMCO Operating Partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include amounts attributable to previously claimed depreciation deductions on certain types of property. In addition, the maximum federal income tax rate for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as the AIMCO Operating Partnership) held for more than 12 months is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." TERMINATION OF THE AIMCO OPERATING PARTNERSHIP In the event of the dissolution of the AIMCO Operating Partnership, a distribution of AIMCO Operating Partnership property (other than money and marketable securities) will not result in taxable gain to an OP Unitholder (except to the extent provided in Section 737 of the Code for liquidations occurring within seven years of the date of contribution by an OP Unitholder of property to the AIMCO Operating Partnership), and the OP Unitholder will hold such distributed property with a basis equal to the adjusted basis of such OP Units exchanged therefor, reduced by any money distributed in liquidation. Further, the liquidation of the AIMCO Operating Partnership will be taxable to a holder of Units to the extent that the value of any money and marketable securities distributed in liquidation (including any money deemed distributed as a result of relief from liabilities) exceeds such OP Unitholder's tax basis in his OP Units. 117 123 ALTERNATIVE MINIMUM TAX The Code contains different sets of minimum tax rules applicable to corporate and noncorporate investors. The discussion below relates only to the alternative minimum tax applicable to noncorporate taxpayers. Accordingly, corporate investors should consult with their tax advisors with respect to the effect of the corporate minimum tax provisions that may be applicable to them. Noncorporate taxpayers are subject to an alternative minimum tax to the extent the tentative minimum tax ("TMT") exceeds the regular income tax otherwise payable. The rate of tax imposed on the alternative minimum taxable income ("AMTI") in computing TMT is 26% on the first $175,000 of alternative minimum taxable income in excess of an exemption amount and 28% on any additional alternative minimum taxable income of noncorporate investors. In general, AMTI consists of the taxpayer's taxable income, determined with certain adjustments, plus his items of tax preference. For example, alternative minimum taxable income is calculated using an alternative cost recovery (depreciation) system that is not as favorable as the methods provided for under Section 168 of the Code which the AIMCO Operating Partnership will use in computing its income for regular federal income tax purposes. Accordingly, an OP Unitholder's AMTI derived from the AIMCO Operating Partnership may be higher than such OP Unitholder's share of the AIMCO Operating Partnership's net taxable income. Prospective investors should consult with their tax advisors as to the impact of an investment in OP Units on their liability for the alternative minimum tax. INFORMATION RETURNS AND AUDIT PROCEDURES The AIMCO Operating Partnership will use all reasonable efforts to furnish to each OP Unitholder within 90 days after the close of each taxable year of the AIMCO Operating Partnership, certain tax information, including a Schedule K-1, which sets forth each OP Unitholder's allocable share of the AIMCO Operating Partnership's Taxable Items. In preparing this information the AIMCO GP will use various accounting and reporting conventions to determine the respective OP Unitholder's allocable share of Partnership Tax Items. The AIMCO GP cannot assure a current or prospective OP Unitholder that the IRS will not successfully contend in court that such accounting and reporting conventions are impermissible. No assurance can be given that the AIMCO Operating Partnership will not be audited by the IRS or that tax adjustments will not be made. Further, any adjustments in the AIMCO Operating Partnership's tax returns will lead to adjustments in OP Unitholders' tax returns and may lead to audits of their returns and adjustments of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would bear the cost of any expenses incurred in connection with an examination of such OP Unitholder's personal tax return. Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of Partnership Tax Items generally are determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners. The Code provides for one partner to be designated as the Tax Matters Partner for these purposes. The Tax Matters Partner is authorized, but not required, to take certain actions on behalf of the AIMCO Operating Partnership and OP Unitholders and can extend the statute of limitations for assessment of tax deficiencies against OP Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax Matters Partner may bind an OP Unitholder with less than a 1% profits interest in the AIMCO Operating Partnership to a settlement with the IRS, unless such OP Unitholder elects, by filing a statement with the IRS, not to give such authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review (to which all the OP Unitholders are bound) of a final partnership administrative adjustment and, if the Tax Matters Partner fails to seek judicial review, such review may be sought by any OP Unitholder having at least a 1% interest in the profits of the AIMCO Operating Partnership or by OP Unitholders having in the aggregate at least a 5% profits interest. However, only one action for judicial review will go forward, and each OP Unitholder with an interest in the outcome may participate. 118 124 TAXATION OF FOREIGN OP UNITHOLDERS A Non-U.S. Holder will be considered to be engaged in a United States trade or business on account of its ownership of an OP Unit. As a result, a Non-U.S. Holder will be required to file federal tax returns with respect to its allocable share of the AIMCO Operating Partnership's income which is effectively connected to its trade or business. A Non-U.S. Holder that is a corporation may also be subject to United States branch profit tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of such income. Such a tax may be reduced or eliminated by an income tax treaty between the United States and the country with respect to which the Non-U.S. Holder is resident for tax purposes. Non-U.S. Holders are advised to consult their tax advisors regarding the effects an investment in the AIMCO Operating Partnership may have on information return requirements and other United States and non-United States tax matters, including the tax consequences of an investment in the AIMCO Operating Partnership for the country or other jurisdiction of which such Non-U.S. Holder is a citizen or in which such Non-U.S. Holder resides or is otherwise located. OTHER TAX CONSEQUENCES POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the federal laws and interpretations thereof could adversely affect an investment in AIMCO or the AIMCO Operating Partnership. For example, the Clinton Administration recently released a summary of its proposed budget plan which contains several proposals affecting REITs and partnerships. Such proposals would, among other things, prevent the deductibility of interest incurred on certain debt funded directly or indirectly by AIMCO and prevent an OP Unitholder from using all of its basis in OP Units to offset cash received from the AIMCO Operating Partnership pursuant to a redemption unless such OP Unitholder's entire interest in the AIMCO Operating Partnership is redeemed. It cannot be predicted whether, when, in what forms, or with what effective dates, the tax laws applicable to AIMCO or the AIMCO Operating Partnership, or an investment in AIMCO or the AIMCO Operating Partnership, will be changed. STATE, LOCAL AND FOREIGN TAXES The AIMCO Operating Partnership, OP Unitholders, AIMCO and AIMCO stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business, own property or reside. It should be noted that the AIMCO Operating Partnership owns properties located in a number of states and local jurisdictions, and the AIMCO Operating Partnership and OP Unitholders may be required to file income tax returns in some or all of those jurisdictions. The state, local or foreign tax treatment of the AIMCO Operating Partnership and OP Unitholders and of AIMCO and its stockholders may not conform to the federal income tax consequences discussed above. Consequently, prospective investors should consult their own tax advisors regarding the application and effect of state, local foreign tax laws on an investment in the AIMCO Operating Partnership or AIMCO. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC's web site at http://www.sec.gov. The SEC allows AIMCO to "incorporate by reference" the information AIMCO files with them, which means that AIMCO can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. AIMCO incorporates by reference the documents 119 125 listed below and any of its future filings with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is completed. - Apartment Investment and Management Company's Annual Report on Form 10-K/A for the year ended December 31, 1997; - Apartment Investment and Management Company's Quarterly Reports on Form 10-Q/A and Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, respectively; - Apartment Investment and Management Company's Current Reports on Form 8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed February 6, 1998 and Amendment No. 2 thereto filed May 22, 1998), January 31, 1998, March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998, Amendment No. 2 thereto filed June 22, 1998, Amendment No. 3 thereto filed July 2, 1998, Amendment No. 4 thereto filed August 6, 1998, Amendment No. 5 thereto filed September 4, 1998 and Amendment No. 6 thereto filed September 25, 1998), September 2, 1998, October 1, 1998, October 19, 1998, November 2, 1998 (and Amendment No. 1 thereto filed November 24, 1998, Amendment No. 2 thereto filed December 12, 1998 and Amendment No. 3 thereto filed December 14, 1998, and Amendment No. 4 thereto filed February 11, 1999), December 21, 1998 (as amended by Amendment No. 1 thereto filed February 11, 1999), January 21, 1999, February 5, 1999, February 11, 1999, February 18, 1999 and February 26, 1999. - the description of Apartment Investment and Management Company's capital stock contained in its Registration Statement on Form 8-A (File No. 1-13232) filed July 19, 1994, including any amendment or reports filed for the purpose of updating such description; and Although the AIMCO Operating Partnership has not been filing reports with the SEC long enough to allow its reports to be incorporated herein by reference, it does file such reports with the SEC. Additional information about the AIMCO Operating Partnership may be found in the following documents filed with the SEC: - AIMCO Properties, L.P.'s Registration Statement on Form 10, filed September 4, 1998 (and Amendment 1, filed October 16, 1998). - AIMCO Properties, L.P.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. - AIMCO Properties, L.P.'s Current Report on Form 8-K dated November 2, 1998 (and Amendment No. 1 filed December 7, 1998 and Amendment No. 2 filed December 14, 1998), December 21, 1998 (as amended by Amendment No. 1 filed February 11, 1999), and February 5, 1999. You may request a copy of these filings, at no cost, by writing or calling us at the following address and telephone number: Corporate Secretary Apartment Investment and Management Company 1873 South Bellaire Street, 17th Floor Denver, Colorado 80222 (303) 757-8101 You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of the document. 120 126 LEGAL MATTERS Certain matters as to Maryland law and the validity of the Class A Common Stock and the Preferred Stock will be passed upon for AIMCO by Piper & Marbury L.L.P., Baltimore, Maryland. Certain matters as to the validity of the OP Units will be passed upon for the AIMCO Operating Partnership by Skadden, Arps, Slate, Meagher & Flom LLP. EXPERTS Ernst & Young LLP, independent auditors, have audited (i) AIMCO's consolidated financial statements (and schedule) included in AIMCO's Annual Report on Form 10-K/A for the year ended December 31, 1997; (ii) the consolidated financial statements of the AIMCO Operating Partnership as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in the AIMCO Operating Partnership's Registration Statement on Form 10; (iii) Ambassador's consolidated financial statements as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (as amended on April 3, 1998); (iv) Ambassador's consolidated financial statements as of December 31, 1996 and 1995 and for each of the two years in the period ended December 31, 1996 and the period from August 31, 1994 through December 31, 1994 and the combined financial statements of Prime Properties (Predecessor to Ambassador) for the period from January 1, 1994 through August 30, 1994 included in Amendment No. 1 to AIMCO's Current Report on Form 8-K dated December 23, 1997 filed on February 6, 1998; (v) the consolidated financial statements of Insignia Financial Group, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998); (vi) Cirque Apartment Communities combined historical summary of gross income and direct operating expenses for the year ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November 2, 1998; (vii) Sun Lake Apartments' historical summary of gross income and direct operating expenses for the year ended December 31, 1997 included in Amendment No. 3 to AIMCO's Current Report on Form 8-K dated November 2, 1998; and (viii) Calhoun Beach Club Apartments' historical summary of gross income and direct operating expenses for the year ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated December 21, 1998; as set forth in their reports, which are incorporated in this prospectus by reference. These financial statements are incorporated by reference or included in this prospectus in reliance on their reports, given on their authority as experts in accounting and auditing. The Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities I for the year ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November 2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. The Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities II for the year ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November 2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 121 127 INDEX TO FINANCIAL STATEMENTS OF AIMCO PROPERTIES, L.P.
PAGE ---- AUDITED FINANCIAL STATEMENTS: Report of Independent Auditors............................ F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996................................................... F-3 Consolidated Statements of Income for the Years ended December 31, 1997, 1996 and 1995............................................... F-4 Consolidated Statements of Partners' Capital for the Years ended December 31, 1997, 1996 and 1995................. F-5 Consolidated Statements of Cash Flow for the Years ended December 31, 1997, 1996 and 1995....................... F-6 Notes to Consolidated Financial Statements................ F-9 INTERIM UNAUDITED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997...................................... F-36 Consolidated Statements of Income for the Nine Months ended September 30, 1998, and 1997..................... F-37 Consolidated Statements of Cash Flow for the Nine Months ended September 30, 1998, and 1997..................... F-38 Notes to Consolidated Financial Statements................ F-42
F-1 128 REPORT OF INDEPENDENT AUDITORS The Partners AIMCO Properties, L.P. We have audited the accompanying consolidated balance sheets of AIMCO Properties, L.P. (the "Partnership") as of December 31, 1997 and 1996, and the related consolidated statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(a)(ii). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AIMCO Properties, L.P. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein. ERNST & YOUNG LLP Dallas, Texas March 6, 1998, except for Note 21, as to which the date is June 5, 1998 F-2 129 AIMCO PROPERTIES, L.P. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
ASSETS 1997 1996 ---------- -------- Real estate, net of accumulated depreciation of $153,285 and $120,077 (see Note 3)..................................... $1,503,922 $745,145 Property held for sale...................................... 6,284 6,769 Investments in securities (see Note 4)...................... 22,144 -- Investments in and notes receivable from unconsolidated subsidiaries (see Note 5)................................. 84,459 -- Investments in and note receivable from unconsolidated real estate partnerships (see Note 6).......................... 212,150 -- Cash and cash equivalents................................... 37,088 13,170 Restricted cash............................................. 24,229 15,831 Accounts receivable......................................... 28,656 4,344 Deferred financing costs.................................... 12,793 11,053 Goodwill.................................................... 125,239 -- Other assets................................................ 43,546 31,361 ---------- -------- Total assets...................................... $2,100,510 $827,673 ========== ======== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable (see Note 7).......................... $ 681,421 $242,110 Secured tax-exempt bond financing (see Note 9).............. 74,010 75,497 Secured short-term financing (see Note 8)................... 53,099 192,039 Unsecured short-term financing (see Note 10)................ -- 12,500 ---------- -------- Total indebtedness................................ 808,530 522,146 ---------- -------- Accounts payable, accrued and other liabilities............. 88,170 16,299 Resident security deposits and prepaid rents................ 10,213 4,316 ---------- -------- Total liabilities................................. 906,913 542,761 ---------- -------- Commitments and contingencies (see Note 12)................. -- -- Minority interest (see Note 13)............................. 36,335 10,386 Redeemable Partnership Units (see Note 15).................. 197,086 96,064 Partners' capital (see Note 15) General and Special Limited Partner....................... 825,597 178,462 Preferred Units........................................... 134,579 -- ---------- -------- Total partners' capital........................... 960,176 178,462 ---------- -------- Total liabilities and partners' capital........... $2,100,510 $827,673 ========== ========
See accompanying notes to consolidated financial statements. F-3 130 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER UNIT DATA)
1997 1996 1995 -------- -------- -------- RENTAL PROPERTY OPERATIONS Rental and other property revenues......................... $193,006 $100,516 $ 74,947 Property operating expenses................................ (76,168) (38,400) (30,150) Owned property management expenses......................... (6,620) (2,746) (2,276) Depreciation............................................... (37,741) (19,556) (15,038) -------- -------- -------- Income from property operations............................ 72,477 39,814 27,483 SERVICE COMPANY BUSINESS Management fees and other income........................... $ 13,937 $ 8,367 $ 8,132 Management and other expenses.............................. (9,910) (5,352) (4,953) Partnership overhead allocation............................ (588) (590) (581) Amortization of management company goodwill................ (948) (500) (428) Depreciation and amortization.............................. (453) (218) (168) -------- -------- -------- Income from service company business....................... 2,038 1,707 2,002 Minority interests in service company business............. (10) 10 (29) -------- -------- -------- Partnership's share of income from service company business................................................. 2,028 1,717 1,973 -------- -------- -------- General and administrative expenses........................ (5,396) (1,512) (1,804) Interest expense........................................... (51,385) (24,802) (13,322) Interest income............................................ 8,676 523 658 Minority interest.......................................... 1,008 (111) -- Equity in losses of unconsolidated partnerships............ (1,798) -- -- Equity in earnings of unconsolidated subsidiaries.......... 4,636 -- -- -------- -------- -------- Income from operations..................................... 30,246 15,629 14,988 Gain on disposition of properties.......................... 2,720 44 -- -------- -------- -------- Income before extraordinary item........................... 32,966 15,673 14,988 Extraordinary item -- early extinguishment of debt......... (269) -- -- -------- -------- -------- Net income................................................. 32,697 15,673 14,988 Net income attributable to Preferred Unitholders........... 2,315 -- 5,169 -------- -------- -------- Net income attributable to OP Unitholders.................. $ 30,382 $ 15,673 $ 9,819 ======== ======== ======== Basic earnings per OP Unit................................. $ 1.09 $ 1.05 $ 0.86 ======== ======== ======== Diluted earnings per OP Unit............................... $ 1.08 $ 1.04 $ 0.86 ======== ======== ======== Weighted average OP Units outstanding...................... 27,732 14,978 11,453 ======== ======== ======== Weighted average OP Units and OP Unit equivalents outstanding.............................................. 28,113 14,994 11,461 ======== ======== ======== Distributions paid per OP Unit............................. $ 1.85 $ 1.70 $ 1.66 ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 131 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
GENERAL PARTNER AND SPECIAL LIMITED PREFERRED PARTNER UNITS TOTAL --------------- --------- --------- PARTNERS' CAPITAL AT JANUARY 1, 1995........................ $137,354 $ 107,228 $ 244,582 Contributions from AIMCO related to Class A common offering.................................................. 46,874 -- 46,874 Repurchase of OP Units...................................... (10,628) -- (10,628) OP Units redeemed to Special Limited Partner................ 18 -- 18 Redemption of mandatorily redeemable 1994 Cumulative Convertible Senior Preferred Units........................ -- (107,228) (107,228) Net income.................................................. 8,206 5,169 13,375 Distributions paid to Preferred Unit holders................ -- (5,169) (5,169) Distributions paid to OP Unit holders....................... (15,757) -- (15,757) Adjustment to reflect limited partners' equity at redemption value..................................................... (5,120) -- (5,120) -------- --------- --------- PARTNERS' CAPITAL AT DECEMBER 31, 1995...................... 160,947 -- 160,947 Contributions from AIMCO related to Class A common offering.................................................. 28,136 -- 28,136 Contributions from AIMCO related to options exercised....... 58 -- 58 Contribution from AIMCO related to stock purchased by officers, net of notes receivable of $7,140............... 11,437 -- 11,437 Repurchase of OP Units...................................... (4,255) -- (4,255) OP Units redeemed to Special Limited Partner................ 3,799 -- 3,799 Acquisition of real estate or interests in real estate partnerships through issuance of OP Units................. 15,294 -- 15,294 Net income.................................................. 12,984 -- 12,984 Distributions paid to OP Unit holders....................... (20,736) -- (20,736) Adjustment to reflect limited partners' equity at redemption value..................................................... (29,202) -- (29,202) -------- --------- --------- PARTNERS' CAPITAL AT DECEMBER 31, 1996...................... 178,462 -- 178,462 Contributions from AIMCO related to Class A common offering.................................................. 510,114 -- 510,114 Contributions from AIMCO related to Class B preferred offering.................................................. -- 75,000 75,000 Contributions from AIMCO related to Class C preferred offering.................................................. -- 58,110 58,110 Contribution from AIMCO related to stock purchased by officers, net of notes receivable of $33,517.............. 1,198 -- 1,198 Contributions from AIMCO related to options and warrants exercised, net of notes receivable of $9,045.............. (327) -- (327) Acquisition of NHP through issuance of OP Units............. 180,851 -- 180,851 OP Units redeemed to Special Limited Partner................ 8,621 -- 8,621 Repayment of notes receivable from officers of AIMCO........ 14,540 -- 14,540 Net Income.................................................. 26,318 2,315 28,633 Distributions paid to OP Unit holders....................... (44,660) -- (44,660) Distributions paid to Class B Preferred Unit holders........ -- (846) (846) Adjustment to reflect limited partners' equity at redemption value..................................................... (47,837) -- (47,837) Unrealized loss on investments.............................. (1,683) -- (1,683) -------- --------- --------- PARTNERS' CAPITAL AT DECEMBER 31, 1997...................... $825,597 $ 134,579 $ 960,176 ======== ========= =========
See accompanying notes to consolidated financial statements F-5 132 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
1997 1996 1995 --------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income................................................ $ 32,697 $ 15,673 $ 14,988 --------- -------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 43,520 21,209 15,859 Gain on disposition of property......................... (2,720) (44) -- Minority interests...................................... (1,008) 111 -- Equity in losses of unconsolidated partnerships......... 1,798 -- -- Equity in earnings of unconsolidated subsidiaries....... (4,636) -- -- Extraordinary loss on early extinguishment of debt...... 269 -- -- (Increase) decrease in restricted cash.................. (7,421) 6,678 (6,072) Increase in other operating assets, net................. (15,799) (4,785) (1,567) Increase (decrease) in operating liabilities, net....... 26,332 (36) 2,703 --------- -------- --------- Total adjustments................................... 44,399 25,822 12,536 --------- -------- --------- Net cash provided by operating activities........... 73,032 38,806 25,911 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 17,147 -- Purchase of real estate................................... (376,315) (26,032) (52,419) Purchase of NHP common stock, notes receivable, general and limited partnership interests and other assets...... (199,146) (53,878) -- Note receivable and investment in unconsolidated subsidiary.............................................. (59,787) -- -- Advances to unconsolidated partnerships................... (42,879) -- -- Additions to property held for sale....................... (247) (5,718) -- Capital replacements...................................... (7,350) (5,133) (2,865) Initial capital expenditures.............................. (9,108) (6,194) (4,879) Construction in progress and capital enhancements......... (8,477) (7,629) (639) Proceeds from sale of property held for sale.............. 303 -- -- Purchase of NHP mortgage loans............................ (60,575) -- -- Purchase of Ambassador common stock....................... (19,881) -- -- Distributions received from unconsolidated subsidiary..... 45,791 -- -- Purchase of office equipment and leasehold improvements... (1,784) (707) (19) --------- -------- --------- Net cash used investing activities.................. (717,663) (88,144) (60,821) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of OP Units, net of underwriting and offering costs...................................... 510,114 28,136 46,792 Principal repayments received on notes due from Officers on OP Unit purchases.................................... 25,957 -- -- Proceeds from exercises of employee stock options and warrants................................................ 871 -- -- Proceeds from issuance of Class B Preferred Units......... 75,000 -- -- Proceeds from issuance of Class C Preferred Units......... 58,110 -- -- Proceeds from secured tax-exempt bond financing........... -- 58,010 -- Proceeds from secured notes payable borrowings............ 225,436 -- 155,401 Principal paydowns on secured tax-exempt bond financing... (1,487) (48,703) -- Principal paydowns on secured notes payable............... (12,512) (28,463) (43,666) Principal paydowns on unsecured short-term note payable... (79) -- -- Net borrowings (paydowns) on Credit Facility.............. (162,008) 40,800 (17,600) Proceeds from secured short-term financing................ 19,050 30,119 25,000 Proceeds (payoff) from unsecured short-term financing..... (12,500) 12,500 -- Payment of loan costs, including proceeds and costs from interest rate hedges.................................... (6,387) (3,464) (4,703) Redemption of mandatorily redeemable 1994 Cumulative Convertible Senior Preferred Units and repurchase of unregistered OP Units................................... -- -- (107,228) Payment of distribution on mandatorily redeemable 1994 Cumulative Convertible Senior Preferred Units........... -- -- (5,169) Repurchase of OP Units.................................... -- (4,255) -- Payment of distributions to limited partners.............. (5,510) (3,815) 2,925) Payment of distributions to OP Unitholders................ (44,660) (20,736) (15,757) Payment of Class B Preferred Unit distributions........... (846) -- -- --------- -------- --------- Net cash provided by financing activities........... 668,549 60,129 30,145 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 23,918 10,791 (4,765) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,170 2,379 7,144 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 37,088 $ 13,170 $ 2,379 ========= ======== =========
See accompanying notes to consolidated financial statements. F-6 133 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS EXCEPT UNIT AND SHARE DATA) SUPPLEMENTAL CASH FLOW INFORMATION:
1997 1996 1995 -------- ------- ------- Interest paid............................................... $ 51,076 $22,869 $12,170
NON CASH INVESTING AND FINANCING ACTIVITIES PURCHASE OF REAL ESTATE, CASH COLLATERAL AND PROPERTY MANAGEMENT BUSINESSES
1997 1996 1995 -------- ------- ------- Secured notes payable assumed in connection with purchase of real estate............................................... $140,451 $31,796 $ 8,242 Secured short-term financing assumed in connection with purchase of real estate................................... 9,600 5,072 -- Real estate, restricted cash, cash collateral and property management businesses contributed in exchange for Partnership Units ("OP Units")............................ 55,906 15,279 2,626 OP Units issued in consideration for purchase of real estate.................................................... -- 15,294 -- -------- ------- ------- $205,957 $67,441 $10,868 ======== ======= =======
PURCHASE OF NHP REAL ESTATE COMPANIES In 1997, the Partnership, individually and through Apartment Investment and Management Company ("AIMCO"), the General Partner and Special Limited Partner of the Partnership, acquired NHP Partners, Inc., NHP Partners Two Limited Partners and their subsidiaries (collectively, the "NHP Real Estate Companies") and all of the common stock of NHP Incorporated ("NHP") in exchange for 6,759,148 shares of AIMCO Class A Common Stock ("Class A Common Shares") with a recorded value of $180.9 million, $141.3 million in cash and warrants to purchase 399,999 Class A Common Shares in a series of related transactions (see Notes 5 and 6). The aggregate purchase price consisted of the following: Assets purchased............................................ $638,944 Liabilities assumed......................................... 312,555 Cash paid................................................... 141,328 OP Units issued............................................. 180,851 Options issued.............................................. 4,210
PURCHASE OF ENGLISH PORTFOLIO In 1996, the Partnership issued 789,039 OP Units with a recorded value of $16,877 and assumed $1,051 in secured short-term financing in connection with the purchase of certain partnership interests, real estate and related assets (the "English Portfolio") owned by J.W. English and certain affiliated entities. The aggregate purchase price consisted of the following: Assets purchased............................................ $218,268 Liabilities assumed......................................... 172,154 Cash paid................................................... 29,237 OP Units issued............................................. 16,877
F-7 134 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED) (IN THOUSANDS EXCEPT UNIT AND SHARE DATA) REPAYMENT OF SECURED NOTE PAYABLE In 1996, 63,152 OP Units with a recorded value of $1,168 were issued in connection with the repayment of the second deed of trust on a property purchased in 1996. RECEIPT OF NOTES RECEIVABLE DUE FROM OFFICERS In 1997, AIMCO received promissory notes from officers of AIMCO for a total of $42.6 million in connection with the sale of 1,462,735 Class A Common Shares (of which $14,664 was repaid in 1997 and an additional $5.7 million was repaid in February and March 1998). The notes receivable were contributed by AIMCO to the Partnership in exchange for 1,462,735 OP Units. In 1996, AIMCO received promissory notes due from officers of AIMCO for a total of $18,557 in connection with the sale of 895,250 Class A Common Shares (of which $11,440 was repaid in March 1997). The notes receivable were contributed by AIMCO to the Partnership in exchange for 895,250 OP Units. OTHER In 1997, the Partnership issued an additional 216,564 OP Units with a recorded value of $7,469 in connection with the purchase of certain partnership interests. F-8 135 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996, AND 1995 NOTE 1 -- ORGANIZATION AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership" (and together with entities in which the Partnership has a controlling financial interest, the "Company")), a Delaware limited partnership, was formed on May 16, 1994 to conduct the business of acquiring, developing, leasing, and managing multi-family apartment communities. Apartment and Investment Management Company ("AIMCO") is the General Partner and Special Limited Partner, as defined in the Second Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (the "Agreement"), of the Partnership. In addition, AIMCO is the holder of all Partnership Preferred Units ("Preferred Units") outstanding in the Partnership. The Limited Partners of the Partnership are individuals or entities that own limited partnership units in the Partnership ("OP Units") other than AIMCO. After holding the OP Units for one year, the Limited Partners have the right to redeem their OP Units for cash, subject to the prior right of AIMCO to elect to acquire some or all of the OP units tendered for redemption for cash or in exchange for shares of Class A Common Stock, on a one-for-one ratio. The Partnership, through its operating divisions and subsidiaries, was formed to hold and conduct substantially all of AIMCO's operations and manages the daily operations of AIMCO's business and assets. All employees of the Company are employees of the Partnership; AIMCO has no employees. According to the terms of the Agreement, the capital structure of the Partnership, in terms of the OP units owned by the General Partner, the Special Limited Partner and the Preferred Units outstanding, is required to mirror the capital structure of AIMCO, with the only difference being the Partnership has additional OP Units outstanding which are owned by the Limited Partners. Therefore, AIMCO is required to contribute to the Partnership all proceeds from offerings of its Class A Common Stock, preferred stock, or any other equity offerings. In addition, substantially all of AIMCO's assets must be owned through the Partnership; therefore, AIMCO is generally required to contribute to the Partnership all assets acquired. In exchange for the contribution of offering proceeds or assets, AIMCO receives additional interests in the Partnership with similar terms (i.e., if AIMCO contributes proceeds of a preferred stock offering, AIMCO receives Preferred Units). AIMCO frequently consummates transactions for the benefit of the Partnership. For legal, tax or other business reasons, AIMCO may hold title or ownership of certain assets until they can be transferred to the Partnership. However, the Partnership has a controlling financial interest in all of AIMCO's assets in the process of transfer to the Partnership. In December 1997, AIMCO acquired all of the outstanding stock of NHP in a purchase transaction. Subsequent to completion of the transaction, AIMCO contributed substantially all the assets and liabilities of NHP to the Partnership in exchange for OP Units. NHP provided a broad array of real estate services nationwide, including property management and asset management. As of December 31, 1997, substantially all of the Partnership's property and asset management business is conducted through PAMS, Inc., PAMS, LP and unconsolidated subsidiaries of the Partnership. At December 31, 1997, the Partnership had 45,802,097 OP Units outstanding, 750,000 Class B Preferred Units outstanding and 2,400,000 Class C Preferred Units outstanding. At December 31, 1997, the Partnership owned or controlled 40,039 units in 147 apartment properties (the "Owned Properties"), held an equity interest in 83,431 units in 515 apartment properties (the "Equity Properties") and managed 69,587 units in 374 apartment properties for third party owners and affiliates (the "Managed Properties" and, together with the Owned Properties and Equity Properties, the "AIMCO Properties"), bringing the total managed portfolio to 193,057 units in 1,036 apartment properties. The AIMCO Properties are located in 42 states, the District of Columbia and Puerto Rico. F-9 136 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Partnership and subsidiaries and limited partnerships in which the Partnership has a controlling financial interest. Pursuant to a Management and Contribution Agreement between the Partnership and AIMCO, the Partnership has acquired, in exchange for interests in the Partnership, the economic benefits of subsidiaries of AIMCO in which the Partnership does not have an interest, and AIMCO has granted the Partnership a right of first refusal to acquire such subsidiaries' assets for no additional consideration. Pursuant to the agreement, AIMCO has also granted the Partnership certain rights with respect to assets of such subsidiaries. Interests held by limited partners in real estate partnerships controlled by the Partnership are reflected as Minority Interests in Other Partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in Unconsolidated Subsidiaries The Partnership has investments in numerous subsidiaries. Investments in entities in which the Partnership does not have control, are accounted for under the equity method. Under the equity method, the Partnership's pro-rata share of the earnings or losses of the entity for the periods being presented is included in earnings (losses) from unconsolidated subsidiaries (see Note 5). Investments in and Notes Receivable from Real Estate Partnerships The Company owns general and limited partnership interests in numerous partnerships that own multi-family apartment properties. Investments in real estate partnerships in which the Company does not have control, are accounted for under the equity method. Under the equity method, the Company's pro-rata share of the earnings or losses of the entity for the periods being presented is included in earnings (losses) from unconsolidated partnerships (see Note 6). Real Estate and Depreciation Real estate is recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the future undiscounted cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. As of December 31, 1997, management believes that no impairments exist based on periodic reviews. No impairment losses were recognized for the years ended December 31, 1997, 1996 and 1995. Expenditures that maintain an existing asset which has a useful life of more than one year are capitalized as capital replacement expenditures and depreciated over the estimated useful life of the asset. Depreciation is calculated on the straight-line method based on a fifteen to thirty year life for buildings and improvements and five years for furniture, fixtures and equipment. Initial capital expenditures are those costs considered necessary by the Partnership in its investment decision to correct deferred maintenance or improve a property. Capital enhancements are costs incurred that add a material new feature or increase the revenue potential of a property. Initial capital expenditures and capital enhancement costs are capitalized and depreciated over the estimated useful lives of the related assets. F-10 137 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Partnership capitalizes direct and indirect costs (including interest, taxes and other costs) in connection with the development or redevelopment of its Owned Properties and land under development. Direct costs associated with the acquisition of Owned Properties are capitalized as a cost of the assets acquired, and are depreciated over the estimated useful lives of the related assets. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. Property Held for Sale Property held for sale is recorded at the lower of cost, less accumulated depreciation, or estimated sales proceeds less selling costs. Upon management's determination that a property is to be sold, the Partnership ceases deprecation of the property's assets. Cash Equivalents The Partnership considers highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted Cash Restricted cash includes capital replacement reserves, completion repair reserves, bond sinking fund amounts, and tax and insurance impound accounts held by lenders. Goodwill The Partnership records goodwill in connection with purchase business combinations where the aggregate purchase price exceeds the fair value of the assets acquired. Goodwill is amortized on a straight-line basis over a period of 20 years, which represents its useful life. Deferred Financing Costs Fees and costs incurred in obtaining financing are capitalized. Such costs are amortized over the terms of the related loan agreements and are charged to interest expense. Other Assets Intangible assets are included in other assets and consist of costs associated with the purchase of property management businesses, including property management contracts, legal and other acquisition costs. These costs are amortized on a straight-line basis over terms ranging from five to twenty years. Compensated Absences The Partnership employees earn vacation time ratably throughout the calendar year. The rate at which vacation time is earned is based primarily on an employee's length of service. An employee may accrue up to the maximum number of hours for which he/she is eligible to take in any one calendar year. The Partnership's policy is to compensate employees for all vacation time earned, but not taken, upon the employee's termination. As of December 31, 1997, the Partnership has not accrued vacation pay earned, but not yet taken by its employees. Management does not believe that the accrual of earned vacation compensation would have a material effect on the consolidated financial statements. Redeemable Partnership Units The Partnership accounts for the outstanding common units not held by AIMCO as redeemable partnership units. These units are classified outside of permanent partners' capital in the accompanying F-11 138 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) balance sheet. The units are initially recorded at their fair value and subsequently adjusted based on the fair value at the balance sheet date as measured by the closing price of AIMCO's common stock on that date by the total number of units outstanding (see Note 15). Revenue Recognition The AIMCO Properties have operating leases with apartment residents with terms generally of six months or less. Rental revenues and property management and asset management fees are recognized when earned. Interest Rate Lock Agreements Interest rate lock agreements related to planned refinancings of identified variable rate indebtedness are accounted for as anticipatory hedges. Upon the refinancing of such indebtedness, any gain or loss associated with the termination of the interest rate lock agreement is deferred and recognized over the life of the refinanced indebtedness (see Note 11). In order for the interest rate lock to qualify as an anticipatory hedge, the following criteria must be met: (a) the refinance being hedged exposes the Partnership to interest rate risk; (b) the interest rate lock is designated as a hedge; (c) the significant characteristics and expected terms of the refinance are identified; and (d) it is probable that the refinance will occur. The Partnership believes that all four of the above qualifications have been met. In the event that any of the above qualifications are not met, the interest rate lock will not qualify as an anticipatory hedge, and the gain or loss on the interest rate lock will be recognized in the current period's earnings. Income Taxes Income or losses of the Partnership are allocated to the partners of the Partnership for inclusion in their respective income tax returns. Accordingly, no provision or benefit for income taxes has been made in the accompanying financial statements. AIMCO has elected to be taxed as a real estate investment trust ("REIT") as defined under the Internal Revenue Code of 1986, as amended (the "Code"). In order for AIMCO to qualify as a REIT, at least 95% of AIMCO's gross income in any year must be derived from qualifying sources. The activities of PAMS, Inc., PAMS, LP and other unconsolidated subsidiaries engaged in the service company business are not qualifying sources. As a REIT, AIMCO generally will not be subject to U.S. federal income taxes at the corporate level if it distributes at least 95% of its REIT taxable income to its shareholders. REITs are also subject to a number of other organizational and operational requirements. If AIMCO fails to qualify as a REIT in any taxable year, its taxable income will be subject to U.S. federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if AIMCO qualifies as a REIT, it may be subject to certain state and local income taxes and to U.S. federal income and excise taxes on its undistributed income. For income tax purposes, distributions paid to holders of OP Units consist of ordinary income, capital gains, return of capital or a combination thereof. Earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due to differences for U.S. federal tax purposes in the estimated useful lives used to compute depreciation and the carrying value (basis) of the investments in the Owned Properties. F-12 139 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For the years ended December 31, 1997, 1996 and 1995, distributions paid per OP Unit were taxable as follows:
1997 % 1996 % 1995 % ----- --- ----- --- ----- --- Ordinary income........................ $1.74 94% $1.45 85% $1.48 89% Return of capital...................... -- -- 0.25 15% 0.18 11% Capital gains.......................... 0.04 2% -- -- -- -- Depreciation recapture................. 0.07 4% -- -- -- -- ----- --- ----- --- ----- --- $1.85 100% $1.70 100% $1.66 100% ===== === ===== === ===== ===
Earnings Per OP Unit Earnings per OP Unit is calculated based on the weighted average number of OP Units, OP Unit equivalents and dilutive convertible securities outstanding during the period. Diluted earnings per OP Unit is based upon the weighted average number of OP Units outstanding during the period and includes the effect of potential issuance of additional OP Units if stock options and warrants were exercised or converted into common stock of AIMCO (see Note 17). Fair Value of Financial Instruments The estimated aggregate fair value of the Partnership's cash and cash equivalents, receivables, payables and short-term secured and unsecured financing as of December 31, 1997 is assumed to approximate their carrying value due to their relatively short terms. Management further believes that, after consideration of interest rate agreements, the fair market value of the Partnership's secured tax-exempt bond financing and secured long-term financing approximates their carrying value, based on market comparisons to similar types of debt instruments having similar maturities. In valuing its investments in securities at their quoted market price, the Partnership has recognized unrealized losses on investments of $1.7 million as of December 31, 1997, which are included as a component of partners' capital. Insurance Subsidiary Reinsurance premiums written are earned on a monthly pro rata basis over the terms of the policies. A reserve for outstanding losses and loss-related expenses of $14.8 million has been provided at December 31, 1997. The reserve includes estimates for insurance losses incurred but not reported, as well as losses pending settlement. Reserves are based on Management's estimates and are believed to be adequate. Use of Estimates The preparation of the Partnership's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates. F-13 140 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- REAL ESTATE Real estate at December 31 is as follows (in thousands):
1997 1996 ---------- --------- Land........................................................ $ 265,570 $ 118,031 Buildings and improvements.................................. 1,391,637 747,191 ---------- --------- 1,657,207 865,222 Accumulated depreciation.................................... (153,285) (120,077) ---------- --------- $1,503,922 $ 745,145 ========== =========
During the years ended December 31, 1997 and 1996, the Company purchased or acquired control of 59 properties (17,191 units) and 42 properties (10,484 units), respectively, and disposed of five properties (916 units) and four properties (1,265 units), respectively, as described below. The Partnership directly acquired nine apartment communities in unrelated transactions during 1997 (the "1997 Acquisitions"). The aggregate consideration paid by the Partnership of $204.3 million consisted of $75.4 million in cash, 1.9 million OP Units with a total recorded value of $55.9 million and the assumption of $73.0 million of secured long-term indebtedness. As a result of acquisition of the NHP Real Estate Companies (see Note 6) and related tender offers to limited partners, the Company acquired a controlling interest in 15 partnerships (the "Controlled NHP Partnerships"), which own 5,285 units located in 15 apartment communities. The portion of the aggregate purchase price for the NHP Real Estate Companies allocated to the Controlled NHP Partnerships was approximately $269.3 million, including the assumption of approximately $212.3 million of mortgage indebtedness. In October 1997, the Partnership acquired a portfolio of 35 residential apartment properties (the "Winthrop Portfolio"). The aggregate purchase price of $263.0 million, including transaction costs, was comprised of $115.6 million in cash, the assumption of $8.3 million in mortgage indebtedness and the creation of $139.1 million of new indebtedness secured by the properties. The Partnership has also budgeted an additional $16.0 million in initial capital expenditures related to the Winthrop Portfolio. During 1997, the Partnership sold five apartment properties containing 916 units to an unaffiliated third party (the "1997 Dispositions"). Cash proceeds from the sale of approximately $22.7 million were used to repay a portion of the Partnership outstanding indebtedness. The Partnership recognized a gain of approximately $2.8 million on the disposition on these five properties. The Partnership acquired 100% ownership in seven apartment properties in unrelated transactions in 1996 (the "1996 Acquisitions"). The aggregate consideration paid by the Partnership of $93.1 million consisted of $26.0 million in cash, 1,449,403 in OP Units with a total recorded value of $30.3 million and the assumption of $31.7 million of secured long-term indebtedness and $5.1 million of secured short-term indebtedness. Each transaction, with the exception of Peachtree Park and Somerset Village (see Note 19), was with an unaffiliated third party. In November 1996, the Partnership completed the acquisition (the "English Portfolio Acquisition") of certain partnership interests, real estate and related assets owned by J.W. English, a Houston, Texas-based real estate syndicator and developer, and certain affiliated entities (collectively, the "J.W. English Companies"). The English Portfolio Acquisition included the purchase of all of the general and some of the limited partnership interests in 22 limited partnerships which act as the general partner to 31 limited partnerships (the "English Partnerships") that own 22 multi-family apartment properties, aggregating 5,230 apartment units, and four commercial properties, primarily in Houston, Texas; title to a 104-unit apartment property in F-14 141 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Houston, Texas; certain assets of J. W. English Management Company which provided management services to the apartment properties; and other real estate interests related to the J.W. English Companies' operations. The aggregate purchase price of the English Portfolio Acquisition was $23.1 million, consisting of $15.2 million in OP Units and $7.9 million in cash. The English Partnerships are subject to approximately $95.4 million of mortgage debt. The Partnership also made separate offers (the "English Tender Offers") to the limited partners of 25 of the English Partnerships (the "Tender Offer English Partnerships") to acquire their limited partnerships interests. The various limited partners accepted tenders representing, in the aggregate, approximately 46% of all outstanding limited partnership interests in the Tender Offer English Partnerships. The Partnership paid $16.0 million in cash and $1.7 million in OP Units for the interests tendered in the English Tender Offers. The remaining limited partners elected to continue as limited partners in the Tender Offer English Partnerships. In a series of related transactions completed in November and December 1996, the Partnership acquired general partnership interests in 21 limited partnerships which own twelve multi-family apartment properties (collectively, the "Dallas Acquisition Properties") aggregating 2,839 apartment units, primarily in the Dallas, Texas metropolitan area, and loans made by the general partners and their affiliates to such partnerships, for an aggregate price of $26.7 million in cash (collectively, the "Dallas Portfolio Acquisition"). The Dallas Acquisition Properties are subject to approximately $60.7 million of mortgage debt. The existing limited partners retained their interest in such limited partnerships. During 1996, the Partnership disposed of four properties (the "1996 Dispositions"). The properties were sold to one unaffiliated third party. The cash proceeds from the disposition of approximately $17.1 million were used to pay down $9.2 million of the Partnership's outstanding indebtedness and to provide funds available for future investment purposes. The Partnership recognized a total gain of approximately $44,000 on the disposition of these four properties. In the fourth quarter of 1996, the Partnership completed construction of a 92 apartment unit expansion within the Fairways Apartments in Phoenix, Arizona for a cost of approximately $6.0 million. In 1996, the Partnership acquired Sun Katcher Apartments, a 360-unit apartment property located in Jacksonville, Florida, at a cost of $4.0 million. In 1997, the redevelopment of Sun Katcher was completed at a cost of $4.9 million. The Partnership also recently commenced the renovation and upgrading of Bay West Apartments, a 376-unit apartment property located in Tampa, Florida, for a projected cost of $4.8 million (of which $0.9 million has already been spent), to reposition the property in the marketplace. In addition, the Partnership expects to undertake a major renovation of the Morton Towers Apartments, a 1,277-unit apartment property located in Miami Beach, Florida, at an estimated cost of $35.0 million. Approximately $0.4 million has been spent on the Morton Towers redevelopment as of December 31, 1997. Interest of $1.3 million, $0.8 million and $0.1 million was capitalized for the years ended December 31, 1997, 1996 and 1995, respectively. NOTE 4 -- INVESTMENT IN AMBASSADOR APARTMENTS, INC. In September 1997, the Partnership acquired 886,600 shares of common stock ("Ambassador Common Stock") of Ambassador Apartments, Inc. ("Ambassador"), a publicly traded REIT, for $19.9 million in cash. The shares acquired represented 8.4% of the shares of Ambassador Common Stock outstanding as of the date of the purchase. As of December 31, 1997, the fair market value of the Ambassador stock is $18.2 million. Accordingly, the Partnership has recognized an unrealized loss on the Ambassador investment of $1.7 million, which is included as a component of partners' capital. On December 23, 1997, AIMCO and Ambassador entered into an Agreement and Plan of Merger (the "Ambassador Merger Agreement") pursuant to which Ambassador will be merged with and into AIMCO, F-15 142 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with AIMCO being the surviving corporation (the "Ambassador Merger"). The Ambassador Merger Agreement also provides that, unless otherwise agreed by the parties, Ambassador Apartments, L.P., a Delaware limited partnership (the "Ambassador Operating Partnership"), will be merged with and into the Partnership (the "Ambassador Reorganization") and all outstanding Ambassador Operating Partnership interests will be converted into OP Units at the Conversion Ratio, as defined below. Ambassador conducts substantially all of its operations through the Ambassador Operating Partnership and its subsidiaries. In the Ambassador Merger Agreement, the Ambassador Common Stock is valued at $21 per share. Holders of Ambassador Common Stock will receive for each share an amount of Class A Common Stock equal to the Conversion Ratio. The "Conversion Ratio" means the quotient determined by dividing $21 by the "AIMCO Index Price," which is the aggregate of the average of the high and low sales prices for Class A Common Stock on each of the twenty consecutive NYSE trading days ending on the fifth NYSE trading day immediately preceding the closing of the Ambassador Merger, divided by 20. If the AIMCO Index Price is less than $36 (i.e. the Conversion Ratio is greater than 0.583), then the AIMCO may elect to fix the Conversion Ratio at 0.583 and pay to each holder of Ambassador Common Stock cash sufficient to provide $21 in value for each share of Ambassador Common Stock. The Ambassador Merger Agreement provides that any outstanding options to purchase Ambassador Common Stock may be converted, at the election of the option holder, into cash or options to purchase Class A Common Stock at the Conversion Ratio. The Ambassador Merger Agreement further states that Ambassador's outstanding preferred stock, par value $0.01 per share (the "Ambassador Preferred Stock"), shall be redeemed, subject to the right of holders of shares of Ambassador Preferred Stock to convert such shares into Ambassador Common Stock, immediately prior to the Ambassador Merger. Ambassador is a self-administered and self-managed REIT engaged in the ownership and management of garden-style apartment properties leased primarily to middle income tenants. As of December 31, 1997, Ambassador owned 52 apartment communities with a total of 15,728 units located in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas. In addition, Ambassador manages one property containing 252 units for an unrelated third party. Ambassador conducts substantially all of its operations through the Ambassador Operating Partnership and its subsidiaries. As of December 31, 1997, Ambassador held approximately 94% of the outstanding common units and 100% of the outstanding preferred units of the Ambassador Operating Partnership. The closing of the Ambassador Merger occurred during the second quarter of 1998 (see Note 22). NOTE 5 -- INVESTMENTS IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARIES In order to satisfy certain requirements of the Internal Revenue Code (the "Code") applicable to AIMCO's status as a REIT, certain assets of the Company are held through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. As of December 31, 1997, the Unconsolidated Subsidiaries included AIMCO/NHP Holdings, Inc. ("ANHI"), AIMCO/NHP Properties, Inc. ("ANPI"), NHP Property Management Company ("NHPMC"), and NHP A&R Services, Inc. ("NHPA&R"). In May and September of 1997, AIMCO acquired an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). Pursuant to the NHP Merger, each outstanding share of NHP Common Stock was converted into either (i) 0.74766 shares of Class A Common Stock or (ii) at the shareholder's option, 0.37383 shares of Class A Common Stock and F-16 143 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $10.00 in cash. As a result of the NHP Merger, AIMCO issued 6,759,148 shares of Class A Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase was $349.5 million. Subsequent to the NHP Merger, AIMCO contributed substantially all the assets and liabilities of NHP to the Partnership in exchange for OP Units. In connection with the NHP Merger, the Partnership recorded approximately $125 million in goodwill, which is being amortized using the straight line method over a period of 20 years. In addition, in connection with the NHP Merger, the Partnership executed a plan to close NHP's headquarters in Vienna, Virginia. Concurrent with this plan, certain employees of NHP were either terminated or relocated to the Indianapolis, Indiana office. The Partnership incurred $2.7 million in severance and relocation costs, which were capitalized as a cost of the acquisition. In connection with the purchase of NHP, the Partnership acquired NHP's property management business, as well as several other businesses, including a membership purchasing organization, home health care services, and insurance services. Immediately following the purchase, the Partnership completed a reorganization which resulted in those businesses being conducted by ANHI, ANPI, NHPMC and NHPA&R. As of December 31, 1997, the Partnership's investment in the Unconsolidated Subsidiaries totaled $84.5 million, which consisted of $50.0 million in notes receivable from, and $34.5 million in preferred stock of, the Unconsolidated Subsidiaries. See selected combined financial information for the Partnership's Unconsolidated Subsidiaries and unconsolidated partnerships at Note 6. NOTE 6 -- INVESTMENT IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED REAL ESTATE PARTNERSHIPS In connection with the purchase of the NHP Real Estate Companies, the Company acquired general and limited partnership interests in partnerships that own 82,374 conventional and affordable apartment units in 519 apartment properties. The Company's ownership interests in these partnerships ranges from 1% to 100%, and the provisions of the partnership agreements give the Company varying degrees of control. Subsequent to the acquisition of the NHP Real Estate Companies, the Company contributed interests in certain of the limited partnerships which they controlled to AIMCO/NHP Partners, L.P. ("ANPLP"), a partnership in which the Partnership owns a 99% limited partnership interest. A limited liability company owned by certain directors and officers of AIMCO is the 1% general partner of ANPLP. Based on the provisions of the partnership agreement for ANPLP, the Partnership does not possess control of the partnership. At December 31, 1997, Company's investment in unconsolidated partnerships totaled $212.1 million. F-17 144 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides selected combined financial information for both the Company's Unconsolidated Subsidiaries and unconsolidated partnerships as of and for the year ended December 31, 1997 (in thousands): Real estate, net of accumulated depreciation................ $2,252,702 Management contracts........................................ 51,441 Goodwill.................................................... 45,494 Total assets................................................ 2,827,264 Secured notes payable....................................... 2,951,989 Stockholders' and partners' equity.......................... (767,201) Total liabilities and stockholders' and partners' equity.... $2,827,264 Rental and other property revenues.......................... $ 501,384 Property operating expenses................................. (303,547) Depreciation expense........................................ (63,384) Service company revenues.................................... 23,776 Service company expenses.................................... (11,733) Interest expense............................................ 156,929 Net loss before gain on disposition of properties and discontinued operations................................... (7,589) Net income.................................................. $ 11,536
NOTE 7 -- SECURED NOTES PAYABLE In April 1997, 23 partnerships controlled by the Partnership completed a $108.0 million refinancing of secured, short term, floating rate indebtedness with secured, 20-year, fixed rate, fully amortizing debt. The new notes are secured by 27 apartment properties owned by such partnerships. In connection with this refinancing, the Partnership received proceeds of $3.4 million from two interest rate lock agreements accounted for as hedges (see Note 11). The gain on the interest rate lock agreements was deferred and will be amortized over the life of the debt. During 1997, the Partnership assumed $220.4 million in mortgage indebtedness in connection with the purchase of 39 apartment properties. In addition, in connection with the acquisition of the NHP Real Estate Companies (see Note 6), the Partnership assumed fixed-rate indebtedness totaling approximately $209.8 million, which is secured by 15 properties held by NHP Partnerships in which the Partnership acquired controlling interests. In December 1997, the Partnership refinanced certain notes payable secured by 27 properties, of which, five are Owned Properties and are consolidated. The new notes have an aggregate outstanding principal balance of $91.5 million as of December 31, 1997 and carry fixed interest rates ranging from 6.6% to 6.8%. The new notes are fully amortizing, requiring monthly principal and interest payments, and mature in December 2012. In anticipation of the refinancing, the Partnership entered into an interest rate lock agreement with an investment banking company ("the March Hedge"). The March Hedge had a notional value of $100.0 million and fixed the interest rate of the anticipated refinancing at 7.053%. The March Hedge was settled in connection with the refinancing, at which time the Partnership realized a loss on the hedge of approximately $10.9 million. The loss on the hedge will be amortized over the life of the refinanced debt (see Note 11). F-18 145 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Partnership's long-term secured notes payable at December 31, 1997 and 1996, all of which are non-recourse to the Partnership (in thousands):
1997 1996 -------- -------- Fixed rate, ranging from 5.0% to 10.1%, or a weighted average all-in rate of 8.10%, fully-amortizing notes maturing at various dates through 2029.................... $561,056 $165,762 Fixed rate, ranging from 7.25% to 9.5%, or a weighted average all-in rate of 8.73%, non-amortizing notes maturing at various dates through 2001.................... 106,424 57,198 Floating rate, ranging from 6.7% to 7.4% at December 31, 1997, or a weighted average all-in rate of 7.7%, non-amortizing notes maturing at various dates through 2005...................................................... 13,941 19,150 -------- -------- $681,421 $242,110 ======== ========
Real estate assets which secure the first trust deeds for these secured notes payable had a net book value of $1,117.6 million at December 31, 1997. As of December 31, 1997, the scheduled principal payments for the Partnership's secured notes payable are as follows (in thousands): 1998........................................................ $125,879 1999........................................................ 34,385 2000........................................................ 20,178 2001........................................................ 75,967 2002........................................................ 14,750 Thereafter.................................................. 410,362 -------- $681,421 ========
NOTE 8 -- SECURED SHORT-TERM FINANCING The Partnership utilizes a variety of secured short-term financing instruments to manage its working capital needs and to fund real estate investments. In 1994, the Partnership obtained a variable rate revolving credit facility (the "Credit Facility") with Bank of America National Trust and Savings Association ("Bank of America"). In August 1996, the Credit Facility was extended through August 1998, the interest rate was reduced from LIBOR plus 1.75% to LIBOR plus 1.625% and the commitment was increased from $40.0 million to $50.0 million. In May 1997, the Partnership increased its maximum amount available under the Credit Facility from $50.0 million to $100.0 million. Interest on the Credit Facility was payable monthly at the variable interest rate of LIBOR plus 1.45% unless borrowings exceed 60% of the aggregate collateral value, in which case, the interest rate was LIBOR plus 1.70%. Commitment fees of 0.125% per annum on the remaining availability were payable quarterly. The outstanding balance under the Credit Facility was $33.5 million at December 31, 1997. F-19 146 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Partnership's secured short-term financing at December 31, 1997 and 1996 (in thousands):
1997 1996 ------- -------- Floating rate interest only note, having a stated interest rate of 7.67% at December 31, 1997........................ $19,050 $115,499 Floating rate interest only notes........................... -- 25,615 Floating rate interest only notes secured by property held for sale.................................................. -- 1,051 9.25% fixed rate, non-amortizing note....................... 549 5,074 Floating rate Credit Facility, interest at 7.33% at December 31, 1997, expiring August 1998............................ 33,500 44,800 ------- -------- $53,099 $192,039 ======= ========
Real estate assets, which secure the Partnership's short-term financing, had a net book value of $104.0 million at December 31, 1997. Secured short-term indebtedness totaling $33.5 million is guaranteed by AIMCO and certain of its affiliates and secured by an assignment of the Partnership's general partnership interests in 12 of the English Partnerships. The Partnership replaced the Credit Facility with a new $50 million unsecured revolving credit facility in January 1998, and a new $50 million secured revolving credit facility in February 1998 (see Note 21). NOTE 9 -- SECURED TAX-EXEMPT BOND FINANCING The following table summarizes the Partnership's secured tax-exempt bond financing at December 31, 1997 and 1996, which is non-recourse to the Partnership (in thousands):
1997 1996 ------- ------- 7.0% fully-amortizing bonds, effective rate of 7.3%, due July 2016................................................. $46,498 $47,674 6.9% fully-amortizing bonds due, effective rate of 7.3% July 2016...................................................... 9,529 9,773 4.2% interest only bonds, effective rate of 6.7%, due July 2016...................................................... 5,958 6,000 6.0% interest only bonds, effective rate of 6.7%, secured by a letter of credit in the amount of $5,350, due September 1998...................................................... 5,325 5,350 5.4% interest only bonds due December 2002.................. 6,700 6,700 ------- ------- $74,010 $75,497 ======= =======
Real estate assets securing the tax-exempt bond financing had a net book value of $107.5 million at December 31, 1997. As of December 31, 1997, the scheduled principal payments for the Partnership's secured tax-exempt bonds are as follows (in thousands): 1998........................................................ $ 7,031 1999........................................................ 1,827 2000........................................................ 1,956 2001........................................................ 2,096 2002........................................................ 2,244 Thereafter.................................................. 58,856 ------- $74,010 =======
F-20 147 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- UNSECURED SHORT-TERM FINANCING In November 1996, the Partnership borrowed $12.5 million in conjunction with the purchase of limited partnership interests in the English Partnerships. The loan was repaid in February 1997 with proceeds from a public offering of shares of Class A Common Stock (see Note 15), which were contributed by AIMCO to the Partnership. NOTE 11 -- INTEREST RATE LOCK AGREEMENTS In 1996, in anticipation of refinancing certain indebtedness, the Partnership entered into two interest rate lock agreements with a major New York investment banking company (the "1996 Hedges"). The 1996 Hedges had an aggregate notional value of $100.0 million and fixed the interest rate of the anticipated refinancings at 6.2% and 6.3%. The 1996 Hedges were settled in April 1997 in connection with the refinancing, at which time the Partnership realized aggregate gains of approximately $3.4 million (see Note 7). In March 1997, the Partnership entered into an interest rate lock agreement with an investment banking company (the "March Hedge"). The March Hedge had a notional value of $100.0 million and fixed the interest rate of the anticipated refinancing at 7.053%. The March Hedge was settled December 1997, in connection with the refinancing, at which time the Partnership realized a loss on the hedge of approximately $10.9 million (see Note 7). In September 1997, the Partnership entered into an interest rate lock agreement (the "September Hedge") in anticipation of refinancing certain other long-term indebtedness. The September Hedge has a notional principal amount of $75.0 million, matures on March 19, 1998 and fixes the ten year treasury rate at 6.211% (see Note 21). Based on the fair value of the interest rate lock agreement at December 31, 1997, the Partnership has a potential loss of the September Hedge of approximately $2.6 million. In October 1997, the Partnership entered into an interest rate lock agreement (the "October Hedge") in anticipation of incurring indebtedness in connection with the acquisition of the Foxchase Apartments. The October Hedge had a notional value of $70.0 million and fixed the interest rate of the anticipated indebtedness at 6.13%. The October Hedge was settled in December 1997 when the Foxchase acquisition was completed, at which time the Partnership realized a loss of $1.4 million. The Partnership is exposed to credit risk in the event of nonperformance by the other parties to the interest rate lock agreements. However, the Partnership does not anticipate nonperformance by the counterparties. In addition, since the variable rate in the interest rate lock agreements is not on the same basis as the variable rate indebtedness, the Partnership is exposed to losses to the extent that the LIBOR rate and the Treasury rate change independently of each other. The Partnership does not anticipate that inconsistent changes in the LIBOR rate and the Treasury rate will have a material effect. NOTE 12 -- COMMITMENTS AND CONTINGENCIES Legal In November 1996, purported limited partners of certain of the Tender Offer English Partnerships filed a class action lawsuit against the Partnership, the General Partner, AIMCO and AIMCO/PAM Properties L.P. (collectively, the "AIMCO Parties") and J.W. English in the U.S. District Court for the Northern District of California (the "Federal Action"), alleging among other things, that the AIMCO Parties conspired with J.W. English to breach his fiduciary duty to the plaintiffs, and that the offering materials used by the AIMCO Parties in connection with the English Tender Offers contained misleading statements or omissions. The Federal Action was voluntarily dismissed, without prejudice, in favor of another purported class action filed in May 1997 by limited partners of certain of the Tender Offer English Partnerships and six additional English Partnerships. Two complaints were filed in Superior Court of the State of California (the "California F-21 148 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Actions") against the AIMCO Parties and the J.W. English Companies, alleging, among other things, that the consideration the AIMCO Parties offered in the English Tender Offers was inadequate and designed to benefit the J.W. English Companies at the expense of the limited partners, that certain misrepresentations and omissions were made in connection with the English Tender Offers, that the AIMCO Parties receive excessive fees in connection with their management of the properties owned by the English Partnerships, that the AIMCO Parties continue to refuse to liquidate the English Partnerships and that the English Acquisition violated the partnership agreements governing the English Partnerships and constituted a breach of fiduciary duty. In addition to unspecified compensation and exemplary damages, the original complaints in the California Actions sought an accounting, a constructive trust on the assets and monies acquired by the English defendants in connection with the English Acquisition, a court order removing the AIMCO Parties from management of the English Partnerships and/or ordering disposition of the properties and attorneys fees, expert fees and other costs. The AIMCO Parties intend to vigorously defend themselves in connection with these actions. The AIMCO Parties believe they are entitled to indemnity from the J.W. English Companies, subject to certain exceptions. Failure by the AIMCO Parties to prevail in the California Actions or to receive indemnification could have a material adverse effect on the Partnership's financial condition and results of operations. On August 4, 1997, the AIMCO Parties filed demurrers to both complaints in the California Actions. At a hearing on the demurrers on January 9, 1998, the court granted the AIMCO Parties demurrers to each of the three causes of action against it in the two complaints, with leave to amend. On February 25, 1998, the plaintiffs filed a consolidated amended class and derivative complaint for damages (the "Consolidated Amended Complaint"). The AIMCO Parties have until March 27, 1998 to file a demurrer on behalf of the AIMCO Parties defendants. See Note 21. The Partnership is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Partnership. HUD Enforcement and Limited Denials A significant number of the affordable units included in the AIMCO Properties are subject to regulation by the U.S. Department of Housing and Urban Development ("HUD"). HUD has the authority to suspend or deny property owners and managers from participation in HUD programs with respect to additional assistance within a geographic region through imposition of a limited denial of participation ("LDP") by any HUD office or nationwide for violations of HUD regulatory requirements. In March 1997, HUD announced its intention to step up enforcement against property owners and managers who violate their agreements with HUD, and in July 1997, HUD announced the creation of a new department-wide enforcement division. Three HUD field offices have recently issued LDPs to NHP as a result of physical inspections and mortgage defaults at four NHP Properties, two of which are managed by the Partnership. One LDP was subsequently withdrawn and another was terminated in December 1997 after a reinspection of the property. The one remaining LDP, unless lifted, suspends the Partnership's ability to manage or acquire additional HUD-assisted properties in eastern Missouri until June 24, 1998. AIMCO has requested that HUD terminate the one remaining LDP, but HUD has so far refused to do so, and the Partnership cannot determine whether HUD will reverse that decision with respect to the affected region. Because an LDP is prospective, existing HUD agreements are not affected, so an LDP is not expected to result in the loss of management service revenue from or otherwise to affect properties that the Partnership currently manages in the subject regions. If HUD were to disapprove the Partnership as property manager for one or more affordable properties, the Partnership's ability to obtain property management revenues from new affordable properties may be impaired. F-22 149 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) HUD monitors the performance of properties with HUD-insured mortgage loans. HUD also monitors compliance with applicable regulations, and takes performance and compliance into account in approving management of HUD-assisted properties. In this regard, since July 1988, 29 HUD-assisted properties owned or managed by the NHP Real Estate Companies or NHP have defaulted on non-recourse HUD-insured mortgage loans. Eight of these 29 properties are also currently managed by the Partnership. An additional six properties owned or managed by the Partnership have received unsatisfactory performance ratings. As a result of the defaults and unsatisfactory ratings, a national HUD office must review any field office approval of the Partnership to act as property manager for a HUD-assisted property. The national HUD office has consistently approved NHP's applications to manage new properties, and the Partnership received HUD clearance to acquire NHP and the NHP Real Estate Companies. The Partnership believes that it enjoys a good working relationship with HUD and that the national office will continue to apply the clearance process to large management portfolios such as the Partnership, including the NHP Properties, with discretion and flexibility. While there can be no assurance, the Partnership believes that the unsatisfactory reviews and the mortgage defaults will not unsatisfactory have a material impact on its results of operations or financial condition. In October 1997, NHP received a subpoena from the Inspector General of HUD (the "Inspector General") requesting documents relating to any arrangement whereby NHP or any of its affiliates provides or has provided compensation to owners of HUD multi-family projects in exchange for or in connection with management of a HUD project. The Partnership believes that other owners and managers of HUD projects have received similar subpoenas. Documents relating to certain of the Partnership's acquisitions of property management rights for HUD projects may be responsive to the subpoena. The Partnership is in the process of complying with the subpoena and has provided certain documents to the Inspector General, without conceding that they are responsive to the subpoena. The Partnership believes that its operations are in compliance, in all material respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. Although the Inspector General has not initiated any action against the Partnership or, to the Partnership's knowledge, any owner of a HUD property managed by the Partnership, if any such action is taken in the future, it could ultimately affect existing arrangements with respect to HUD projects or otherwise have a material adverse effect on the results of operations of the Partnership. Environmental Certain of the Owned Properties, and some of the other AIMCO Properties, are located on or near properties that contain or have contained underground storage tanks or on which activities have occurred which could have released hazardous substances into the soil or groundwater. There can be no assurance that such hazardous substances have not been released or have not migrated, or in the future will not be released or will not migrate, onto the AIMCO Properties. Such hazardous substances have been released at certain Owned Properties and, in at least one case, have migrated from an off-site location onto an Owned Property. In addition, the Partnership's Montecito property in Austin, Texas, is located adjacent to, and may be partially on, land that was used as a landfill. Low levels of methane and other landfill gas have been detected at Montecito. The City of Austin (the "City"), the former landfill operator, has assumed responsibility for conducting all investigation and remedial activities to date associated with the methane and other landfill gas. The remediation of the landfill gas is now substantially complete and the Texas Natural Resources Conservation Commission ("TNRCC") has preliminarily approved the methane gas remediation efforts. Final approval of the site and the remediation process is contingent upon the results of continued methane gas monitors to confirm the effectiveness of the remediation efforts. Should further actionable levels of methane gas be detected, a proposed contingency plan of passive methane gas venting may be implemented by the City. The City has also conducted testing at Montecito to determine whether, and to what extent, groundwater has been impacted. Based on test reports received to date by the Partnership, the groundwater does not appear to be contaminated at actionable levels. The Partnership has not incurred, and does not expect to incur, liability for the landfill investigation and remediation; however, the Partnership has relocated some of its tenants and F-23 150 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) has installed a venting system according to the TNRCC's specifications under the buildings slabs, in connection with the present raising of four of its buildings in order to install stabilizing piers thereunder, at a total cost of approximately $550,000, which is primarily the cost for the restabilization. The restabilization was substantially completed in January 1998. The City will be responsible for monitoring the conditions of Montecito. All of the Owned Properties were subject to Phase I or similar environmental audits by independent environmental consultants prior to acquisition. The audits did not reveal, nor is the Partnership aware of, any environmental liability relating to such properties that would have a material adverse effect on the Partnership's business, assets or results of operations. The Managed Properties may not have been subject to Phase I or similar environmental audits by independent environmental consultants. However, the Partnership is not aware of any environmental liability that would have a material adverse effect on its business, financial condition or results of operations relating to the Managed Properties. In October 1997, NHP received a letter ("the EPA Letter") from the U.S. Department of Justice ("DOJ") which stated that the U.S. Environmental Protection Agency ("EPA") has requested that the DOJ file a lawsuit against NHP alleging, among other things, that NHP violated the Clean Air Act, the National Recycling and Emissions Reduction Programs and associated regulations in connection with the employment of certain unlicensed personnel, maintenance and disposal of certain refrigerants, and record-keeping practices at two properties. A settlement in principle between NHP and EPA has been reached, whereby NHP has agreed to pay a fine of less than $0.1 million, permit the EPA to audit 40 NHP with respect to their use and disposal of such refrigerants, and continue to provide training to all maintenance workers with respect to the disposal of such refrigerants. A formal settlement agreement is expected to be executed in 1998. It is possible that the future EPA audits agreed to in the settlement could result in additional allegations by EPA of violations at such properties; however, based on the terms of the settlement agreement with DOJ, the Company anticipates that the fines, if any, resulting from such audits will be nominal. Lease Commitments Minimum payments under the terms of all noncancellable operating leases in which the Partnership is the lessee, principally for office space, at December 31, 1997 are as follows (in thousands): 1998........................................................ $ 541 1999........................................................ 376 2000........................................................ 211 2001........................................................ 170 2002........................................................ 127 ------ $1,425 ======
Total rent expense for the years ended December 31, 1997, 1996 and 1995 was $0.7 million, $0.6 million and $0.6 million, respectively. NOTE 13 -- MINORITY INTERESTS IN OTHER PARTNERSHIPS Interests held by limited partners (other than the Company) in real estate partnerships controlled by the Company are reflected as Minority Interests in Other Partnerships. Net income is allocated based on the percentage interest owned by these limited partners in each respective real estate partnership. NOTE 14 -- AIMCO REGISTRATION STATEMENTS In April 1997, AIMCO filed a shelf registration statement with the Securities and Exchange Commission which provides for the offering of, on a delayed or continuous basis, debt securities, Class A Common Stock, preferred stock and warrants with an aggregate value of up to $1.0 billion. The shelf registration statement was F-24 151 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) declared effective in May 1997. As of December 31, 1997, AIMCO has issued 12,052,418 shares of Class A Common Stock and 3,150,000 shares of preferred stock under the shelf registration, the aggregate gross proceeds of which was $475.6 million. The proceeds from such offerings were contributed by AIMCO to the Partnership for 12,052,418 OP Units and 3,150,000 Preferred Units. As of December 31, 1997, up to $524.4 million of additional securities may be sold under the shelf registration. In February 1998, AIMCO issued 4,200,000 shares of newly created AIMCO Class D Cumulative Preferred Stock ("Class D Preferred Stock") for gross proceeds of $105.0 million (see Note 22). The proceeds from such offering were contributed by AIMCO to the Partnership for 4,200,000 Preferred Units. After giving effect to the sale of the Class D Preferred Stock, up to $419.4 million of additional securities may be sold under the shelf registration. NOTE 15 -- PARTNERS' CAPITAL During 1996 AIMCO issued 895,250 shares of Class A Common Stock to certain executive officers (or entities controlled by them) at $20.75 per share, pursuant to the exercise of stock options issued under the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan. In exchange for the shares purchased, the executive officers (or entities controlled by them) executed notes payable totaling $18.6 million to AIMCO of which $11.9 million was repaid during 1997. The notes receivable were contributed by AIMCO to the Partnership in exchange for 895,250 OP Units. In September 1996, AIMCO's Board of Directors authorized the repurchase of up to 500,000 shares of Class A Common Stock in open market and privately negotiated purchase transactions. The stock may be purchased from time to time as market conditions warrant. In February 1997, AIMCO completed a public offering of 2,015,000 shares of Class A Common Stock at a public offering price of $26.75 per share. The net proceeds of approximately $51.0 million were contributed by AIMCO to the Partnership for 2,015,000 OP Units and were used to repay a portion of the Partnership's indebtedness incurred in connection with 1996 acquisitions. In May 1997, AIMCO sold 2,300,000 shares of Class A Common Stock at an average price of $28 per share in two public offerings. The net proceeds of approximately $63.0 million were contributed by AIMCO to the Partnership for 2,300,000 OP Units and were used to repay $56.0 million of outstanding indebtedness under the Credit Facility and to provide working capital of $7.0 million. In addition, AIMCO issued 2,142,857 shares of Class A Common Stock in connection with the acquisition of 2,866,073 shares of NHP Common Stock (see Note 5). In July 1997, AIMCO sold 1,100,000 shares of Class A Common Stock to certain members of AIMCO's senior management at a price of $30 per share, the closing price of the stock on the date of purchase. In exchange for the shares purchased, such members of senior management executed notes payable to AIMCO totaling $33.0 million, of which $15.8 million has been repaid as of February 28, 1998. The notes bear interest at 7.25% per annum, payable quarterly, and mature in 2007. The notes are secured by the stock purchased and are recourse as to 25% of the original amount borrowed. The notes receivable were contributed by AIMCO to the Partnership in exchange for 1,100,000 OP Units. In August 1997, AIMCO sold 750,000 shares of newly created Class B Cumulative Convertible Preferred Stock ("Class B Preferred Stock") for gross proceeds of $75.0 million in cash to an institutional investor in a private transaction. The proceeds from the offering were contributed by AIMCO to the Partnership in exchange for 750,000 Class B Preferred Units and were used by the Partnership to repay outstanding indebtedness under the Credit Facility and to provide working capital. Holders of the Class B Preferred Stock (which mirror those of the Class B Preferred Units) are entitled to receive, when, as and if declared by the Board of Directors, quarterly cash distributions per share equal to the greater of $1.78125 or the cash distributions declared on the number of shares of Class A Common Stock into which one share of Class B F-25 152 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Preferred Stock is convertible. Each share of Class B Preferred Stock is convertible at the option of the holder, beginning in August 1998, into 3.28407 shares of Class A Common Stock, subject to certain anti-dilution adjustments. The agreement pursuant to which AIMCO issued the Class B Preferred Stock provides that the holders of such stock may require AIMCO to repurchase the Class B Preferred Stock at a price of $105 per share, plus accrued and unpaid distributions, if (i) at any time AIMCO fails to qualify as a REIT; or (ii) upon the occurrence of a change of control of AIMCO, as defined by the aforementioned agreement. The Class B Preferred Stock is senior to the Class A Common Stock as to distributions and liquidation, and is non-voting. In August and September 1997, AIMCO issued an aggregate of 5,052,418 shares of Class A Common Stock to institutional investors for aggregate net proceeds of $156.9 million. AIMCO used $114.4 million of such proceeds to purchase 5,717,000 shares of NHP Common Stock from ANHI, used $7.0 million to purchase 351,974 additional shares of NHP Common Stock from a third party pursuant to a stock purchase agreement, and contributed the remaining $35.5 million to the Partnership (see Note 5). An additional 61,364 shares of Class A Common Stock were subsequently issued in exchange for 82,074 shares of NHP Common Stock. In December 1997, AIMCO issued 4,554,873 shares of Class A Common Stock in connection with the NHP Merger (see Note 5). Substantially all the assets and liabilities of NHP were contributed by AIMCO to the Partnership. In October 1997, AIMCO issued 7,000,000 shares of Class A Common Stock. The net proceeds were contributed by AIMCO to the Partnership in exchange for 7,000,000 OP Units. Net proceeds from the sale of approximately $242.5 million were used to fund certain property acquisitions, repay outstanding indebtedness under the Credit Facility and provide working capital. In December 1997, AIMCO issued 2,400,000 shares of newly created Class C Cumulative Preferred Stock ("Class C Preferred Stock") for net proceeds of $58.1 million. The proceeds from the offering were contributed to the Partnership in exchange for 2,400,000 Class C Preferred Units and were used by the Partnership to repay indebtedness outstanding under the Credit Facility and to provide working capital. Holders of the Class C Preferred Stock (which mirror those of the Class C Preferred Units) are entitled to receive, when, as and if declared by the Board of Directors, annual cash distributions equal to $2.25 per share. The Class C Preferred Stock is senior to the Class A Common Stock as to distributions and liquidation, and is non-voting. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distributions by AIMCO shall be made to any holders of Class A Common Stock, the holders of the Class C Preferred Stock shall be entitled to receive a liquidation preference of $25 per share, plus accrued and unpaid distributions. In February 1998, AIMCO issued 4,200,000 shares of Class D Cumulative Preferred Stock in a public offering. The proceeds from the offering were contributed by AIMCO to the Partnership in exchange for 4,200,000 Class D Preferred Units. (see Note 21). The outstanding common limited partnership units, excluding those common units held by AIMCO, have been classified as redeemable partnership units outside of permanent partners' capital in the accompanying balance sheet of the Partnership. The units are initially recorded at fair value and subsequently adjusted based on fair value at the balance sheet date as measured by the closing price of AIMCO's common stock on that date multiplied by the total number of units outstanding. Certain individuals and entities own common units in the Partnership. A common unit and a share of common stock of AIMCO have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Partnership. Common units are redeemable by common unitholders (other than the General Partner) at their option, subject to certain restrictions, on the basis of one common unit for either one share of common stock or cash equal to the fair value of a share at the time of redemption. AIMCO has the option to deliver shares of common stock in exchange for all or any portion of the cash requested. When a unitholder redeems a common F-26 153 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) unit, limited partner's capital is reduced and the general partner's capital is increased. Common units held by AIMCO are not redeemable. The following table sets forth the changes in redeemable units for the period presented.
LIMITED PARTNERS -------- Redeemable Units at January 1, 1995......................... 32,047 OP Units redeemed in exchange for AIMCO Common Stock...... (18) Acquisition of real estate through issuance of OP Units... 2,626 Net income................................................ 1,613 Distributions paid to OP Unit holders..................... (2,925) Adjustment to reflect limited partners' equity at redemption value....................................... 5,120 ------- Redeemable Units at December 31, 1995....................... 38,463 OP Units redeemed in exchange for AIMCO Common Stock...... (3,799) Acquisition of real estate or interests in real estate partnerships through issuance of OP Units.............. 32,156 Repayment of secured note payable through issuance of OP Units.................................................. 1,168 Net income................................................ 2,689 Distributions paid to OP Unit holders..................... (3,815) Adjustment to reflect limited partners' equity at redemption value....................................... 29,202 ------- Redeemable Units at December 31, 1996....................... 96,064 OP Units redeemed in exchange for AIMCO Common Stock...... (8,621) Acquisition of real estate or interests in real estate partnerships through issuance of OP Units.............. 63,375 OP Units issued in accordance with partnership amendment.............................................. (123) Net income................................................ 4,064 Distributions paid to OP Unit holders..................... (5,510) Adjustment to reflect limited partners' equity at redemption value....................................... 47,837 ------- Redeemable Units at December 31, 1997....................... 197,086
NOTE 16 -- STOCK OPTION PLANS AND STOCK WARRANTS AIMCO, from time to time, will issue stock options and stock warrants. Upon exercise of the stock options or stock warrants, AIMCO must contribute the proceeds received to the Partnership in exchange for OP Units in the same number as Class A Common Stock issued in connection with the exercised stock options or stock warrants. Therefore, the following disclosures are made pertaining to AIMCO's stock options and stock warrants. AIMCO has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the AIMCO's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. AIMCO's Board of Directors has adopted the 1994 Stock Option Plan of Apartment Investment and Management Company (the "1994 Plan"), the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan (the "1996 Plan"), the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (the "1997 Plan") and the Apartment Investment and Management F-27 154 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company Non-Qualified Employee Stock Option Plan (the "Non-Qualified Plan") to attract and retain officers, key employees and independent directors. The 1994 Plan provides for the granting of a maximum of 150,000 options to purchase common shares. The 1996 Plan provides for the granting of a maximum of 500,000 options to purchase common shares. The 1997 Plan provides for the granting of a maximum of 20,000,000 options to purchase common shares. The Non-Qualified Plan provides for the granting of a maximum of 500,000 options to purchase common shares. The 1994 Plan, the 1996 Plan, the 1997 Plan and the Non-Qualified Plan allow for the grant of incentive and non-qualified stock options, and are administered by the Compensation Committee of the Board of Directors. The 1994 Plan also provides for a formula grant of the non-qualified stock options to the independent directors to be administered by the Board of Directors to the extent necessary. The exercise price of the options granted may not be less than the fair market value of the common stock at the date of grant. The term of the incentive and non-qualified options is ten years from the date of grant. The non-qualified options vest 20% per year over a five-year period with initial vesting one year from the date of grant. Terms may be modified at the discretion of the Compensation Committee of the Board of Directors. Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if AIMCO had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1997 1996 1995 ------------ ------------ ------------ Range of risk free interest rates.......... 5.2% to 7.5% 5.2% to 7.5% 5.2% to 7.5% Expected distribution yield................ 6.0% 7.8% 7.8% Volatility factor of the expected market 0.175 0.194 0.194 price of AIMCO's common stock............ Weighted average expected life of 4.5 years 4.5 years 4.5 years options..................................
The Black-Scholes option valuation model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because AIMCO's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting period. AIMCO's pro forma information for the options is as follows (in thousands except per share information):
1997 1996 1995 ------- ------- ------ Pro forma income attributable to OP Unitholders.......... $30,160 $14,890 $9,804 Pro forma basic earnings per OP Unit..................... $ 1.07 $ 0.99 $ 0.86
The effects of applying SFAS 123 in calculating pro forma income attributable to common shareholders and pro forma basic earnings per share may not necessarily be indicative of the effects of applying SFAS 123 to future years' earnings. F-28 155 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the option activity for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 ------------- ------------- ------------- Outstanding at beginning of year........ 505,000 108,000 86,000 AIMCO options granted................... 127,000 803,000 27,000 AIMCO options exercised................. (342,000) (383,000) -- AIMCO options forfeited................. (6,000) (23,000) (5,000) NHP options assumed..................... 595,000 -- -- NHP options exercised................... (95,000) -- -- ------------- ------------- ------------- Outstanding at end of year.............. 784,000 505,000 108,000 ============= ============= ============= Stock options exercisable at the end of year.................................. 690,000 425,000 26,000 ============= ============= ============= Weighted average fair value of options granted during the year............... $3.24 $1.01 $1.75 Weighted average exercise price......... $30.01 $20.74 $17.69 Exercise prices......................... $12.36-$35.00 $20.25-$20.75 $17.12-$18.37 Weighted average remaining contractual life.................................. 8.12 years 9.57 years 9.21 years
At December 31, 1997, the outstanding options consisted of: (i) 500,000 NHP options assumed, with exercise prices ranging from $12.36 to $22.74 and a weighted average exercise price of $17.79, all immediately exercisable; (ii) 234,000 AIMCO options (190,000 exercisable) with exercise prices ranging from $17.125 to $27.75, a weighted average exercise price of $22.13 and a weighted average life of 8.0 years; and (iii) 50,000 AIMCO options (none exercisable) with an exercise price of $35.00 and remaining life of 9.7 years. On June 3, 1997, AIMCO issued warrants (the "NHP Warrants") exercisable to purchase an aggregate of 399,999 shares of Class A Common Stock at $36 per share at any time prior to June 3, 2002. The NHP Warrants were issued as part of the consideration for the NHP Real Estate Companies in a private transaction exempt from registration under the Securities Act pursuant to Section 4(2) thereof. When the NHP Warrants are exercised, the proceeds will be contributed to the Partnership for an equal number of OP Units. On December 2, 1997, AIMCO issued warrants (the "Oxford Warrants") exercisable to purchase up to an aggregate of 500,000 shares of Class A Common Stock at $41 per share. The Oxford Warrants were issued to affiliates of Oxford Realty Financial Group, Inc., a Maryland corporation ("Oxford"), in connection with the amendment of certain agreements pursuant to which the Partnership manages properties controlled by Oxford or its affiliates. The actual number of shares of Class A Common Stock for which the Oxford Warrants will be exercisable is based on certain performance criteria with respect to the Partnership's management arrangements with Oxford for each of the five years ending December 31, 2001. The Oxford Warrants are exercisable for six years after the determination of such criteria for each of the five years. The Oxford Warrants were issued in a private transaction exempt from registration under the Securities Act pursuant to Section 4(2) thereof. When the Oxford Warrants are exercised, the proceeds will be contributed to the Partnership for an equal number of OP Units. NOTE 17 -- EARNINGS PER OP UNIT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") which replaced Accounting Principles Board Opinion No. 15 ("APB 15"). Since each OP Unit may be redeemed by the holder thereof for either one share of AIMCO common stock or cash equal to the fair market value thereof at the time of such redemption, at the option of AIMCO, the Partnership applies the requirements of SFAS 128 to its calculations of its per OP Unit information. As required, the Partnership adopted SFAS 128 as of December 31, 1997. F-29 156 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Class B Preferred Units are convertible (see Note 15). The Class C Preferred Units are not convertible. The following table illustrates the calculation of basic and diluted earnings per unit for the years ended December 31, 1997, 1996 and 1995 (in thousands, except per unit data):
1997 1996 1995 ------- ------- ------- Numerator: Net income.......................................... $32,697 $15,673 $14,988 Preferred Unit distributions........................ (2,315) -- (5,169) ------- ------- ------- Numerator for basic and diluted earnings per OP Unit-- income attributable to OP Unitholders............... $30,382 $15,673 $ 9,819 ======= ======= ======= Denominator: Denominator for basic earnings per OP Unit -- weighted average number of OP Units outstanding...................................... 27,732 14,978 11,453 Effect of dilutive securities: Employee options................................. 381 14 6 Warrants......................................... -- 2 2 ------- ------- ------- Dilutive potential OP Units........................... 381 16 8 ------- ------- ------- Denominator for diluted earnings per OP Unit.......... 28,113 14,994 11,461 ======= ======= ======= Basic earnings per common OP Unit: Operations.......................................... $ 0.99 $ 1.05 $ 0.86 Gain on disposition of properties................... 0.11 -- -- Extraordinary item.................................... (0.01) -- -- ------- ------- ------- Total....................................... $ 1.09 $ 1.05 $ 0.86 ======= ======= ======= Diluted earnings per OP Unit: Operations.......................................... $ 0.98 $ 1.04 $ 0.86 Gain on dispositions of properties.................. 0.11 -- -- Extraordinary item.................................. (0.01) -- -- ------- ------- ------- Total....................................... $ 1.08 $ 1.04 $ 0.86 ======= ======= =======
NOTE 18 -- RECENT ACCOUNTING DEVELOPMENTS In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") which provides guidance with respect to the calculation and presentation of comprehensive income. Comprehensive income includes all transactions affecting partners' capital, including the traditional measure of net income, and excluding contributions from and distributions to OP Unitholders. Under SFAS 130, companies will be required to present comprehensive income and its components on the face of the income statement or in a separate financial statement that is displayed with the same prominence. The Partnership has elected not to adopt the provisions of SFAS 130 as of December 31, 1997. In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") which redefines how business segments are identified and stipulates the content and nature of segment information to be presented in the financial statements. The Partnership has elected not to adopt the provisions of SFAS 131 as of December 31, 1997. F-30 157 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 19 -- TRANSACTIONS WITH AFFILIATES The Partnership serves as property manager for certain apartment properties owned by entities in which certain officers of AIMCO have an ownership interest. Compensation for these services is 3% to 6% of gross receipts from the properties and were $5.4 million, $0.6 million and $1.3 million for the years ending December 31, 1997, 1996 and 1995, respectively. In addition, the Partnership received consulting fees from affiliates of $0.1 million for the year ended December 31, 1995. No consulting fees from affiliates were received for 1997 or 1996. In 1996, the Partnership acquired the Peachtree Park Apartments in Atlanta, Georgia and the Somerset Village Apartments in Salt Lake City, Utah from entities controlled by officers of AIMCO. The aggregate consideration paid of $39.6 million consisted of $3.8 million in cash, 494,125 OP with a total recorded value of $9.9 million, and the assumption of $25.9 million of secured short-term indebtedness. In addition, the Partnership acquired the cable equipment at the Peachtree Park Apartments from an entity controlled by an officer of AIMCO in exchange for 8,243 OP Units with a recorded value $0.2 million. On December 1, 1997, the Partnership purchased the Foxchase Apartments for approximately $107.7 million from First Alexandria Associates, Limited Partnership. The purchase price consisted of approximately $70.0 million in assumed mortgage obligations and the remainder in OP Units. The Company serves as the general partner and a limited partner in First Alexandria Associates, Limited Partnership and has a 54% interest in the partnership. During 1997, in order to preserve AIMCO's REIT status, AIMCO contributed the following assets to the Partnership for OP Units. The Partnership, in turn, contributed the assets to the Unconsolidated Subsidiaries: (i) partnership interests with an estimated value of approximately $0.4 million; (ii) partnership interests, a $50.0 million promissory note and certain management agreements with an aggregate estimated value of approximately $53.7 million; and (iii) the stock of certain corporations with an estimated value of $25.0 million. During July 1997, AIMCO sold 1,100,000 shares of Class A Common Stock to certain members of AIMCO's senior management at a price of $30.00 per share, the closing price of the stock on the date of the purchase. In exchange for the shares purchased, such members of senior management executed notes payable to AIMCO totaling $33.0 million, of which approximately $10.1 million has been repaid as of December 31, 1997 (see Note 15). The notes receivable were contributed by AIMCO to the Partnership in exchange for 1,100,000 OP Units. On August 15, 1997, the Partnership contributed stock of a captive insurance subsidiary to PAMS Inc. Certain members of AIMCO's senior management are shareholders in PAMS Inc. In order to maintain their aggregate 5% ownership interest in PAMS Inc., these individuals contributed an aggregate of $0.2 million to PAMS Inc. On January 21, 1998, the Partnerships sold an aggregate of 15,000 High Performance Units to a limited liability company formed by certain members of AIMCO's senior management and to AIMCO's non-employee directors, for $2.1 million in cash (see Note 21). On January 31, 1998, AIMCO entered into a Contribution Agreement with CK Services, Inc. ("CK") and the stockholders of CK to cause certain assets to be transferred to CK and to distribute all outstanding stock of CK to the stockholders of AIMCO. CK is a corporation wholly-owned by Terry Considine, AIMCO's Chairman and Chief Executive Officer, and by Peter Kompaniez, AIMCO's President and Vice Chairman (see Note 21). F-31 158 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 20 -- EMPLOYEE BENEFIT PLANS The Partnership offers medical, dental, life and long-term disability benefits to employees of the Partnership through insurance coverage of company-sponsored plans. The medical and dental plans are self-funded and are administered by independent third parties. In addition, the Partnership also participates in a 401(k) defined-contribution employee savings plan. Employees who have completed six months of service are eligible to participate. The Partnership matches 50% of the participant's contributions to the plan up to a maximum of 6% of the participant's prior year compensation. NOTE 21 -- SUBSEQUENT EVENTS Distribution Declared On January 22, 1998, AIMCO's Board of Directors, and AIMCO, as the General Partner, declared a cash distribution of $0.5625 per OP Unit (equivalent to $2.25 on an annualized basis, an increase of 21.6% per OP Unit from the 1997 annualized distribution rate) for the quarter ended December 31, 1997, payable on February 13, 1998 to OP Unitholders of record on February 6, 1998. Creation of New Credit Facility In January 1998, the Partnership replaced the existing Credit Facility with a new $50 million unsecured revolving credit facility (the "BOA Credit Facility") with Bank of America and BankBoston, N.A. The Partnership is the borrower under the BOA Credit Facility, but all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The interest rate under the BOA Credit Facility is based on either LIBOR or Bank of America's reference rate, at the election of the Partnership, plus an applicable margin (the "Margin"). The Margin ranges between 0.6% and 1.0% in the case of LIBOR based loans and between 0% and 0.5% in the case of loans based on Bank of America's reference rate, depending upon the credit rating of the Partnership's senior unsubordinated unsecured long-term indebtedness. The BOA Credit Facility expires on January 26, 2000 unless extended for successive one-year periods at the discretion of the lenders. The BOA Credit Facility provides for the conversion of the revolving facility into a three-year term loan. The financial covenants contained in the BOA Credit Facility require the Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a debt service coverage ratio of at least 2.0 to 1.0. In addition, the BOA Credit Facility limits the Partnership from distributing more than 80% of its Funds From Operations (as defined) to OP Unitholders, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. In February 1998, the Partnership, as borrower, and AIMCO and certain single asset wholly-owned subsidiaries of the Partnership (the "Owners"), as guarantors, entered into a five year secured credit facility agreement (the "WMF Credit Facility") with Washington Mortgage Financial Group, Ltd. ("Washington Mortgage"), which provides for a $50 million revolving credit facility and conversion of all or a portion of such revolving credit facility to a base loan facility. The WMF Credit Facility provides that all the rights of Washington Mortgage are assigned to the Federal National Mortgage Association ("FNMA"), but FNMA does not assume Washington Mortgage's obligations under the WMF Credit Facility. At the Partnership's request, the commitment amount may be increased to an amount not to exceed $250 million, subject to consent of Washington Mortgage and FNMA in their sole and absolute discretion. The Partnership and affiliates have pledged their ownership interests in the Owners as security for its obligations under the WMF Credit Facility. The guarantees of the Owners are secured by assets of the Owners, including four apartment properties and two mortgage notes. Advances to the Partnership under the WMF Credit Facility are funded with the proceeds of the sale to investors of FNMA mortgage backed securities that are secured by the advance and an interest in the collateral. The interest rate on each advance is determined by investor bids for such mortgage backed securities plus a fee spread presently equal to 0.5%. The maturity date of each advance F-32 159 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) under the revolving portion of the WMF Credit Facility is a date between three and nine months from the closing date of the advance as selected by the Partnership. Advances under the base facility mature at a date, selected by the Partnership, between ten and twenty years from the date of the advance. Subject to certain conditions, the Partnership has the right to add or substitute collateral. The WMF Credit Facility requires the Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of at least 2.25 to 1.0, and a debt service coverage ratio of at least 2.0 to 1.0, imposes minimum net worth requirements and also provides other financial covenants and interest coverage ratios that are specifically related to the collateral. Contribution Agreement On January 31, 1998, AIMCO entered into a Contribution Agreement with CK Services, Inc. ("CK") and the stockholders of CK to cause certain assets to be transferred to CK and to distribute all outstanding stock of CK to the stockholders of AIMCO. CK is a corporation wholly-owned by Terry Considine, AIMCO's Chairman and Chief Executive Officer, and by Peter Kompaniez, AIMCO's President and Vice Chairman. CK was created as a vehicle for holding property and performing services that AIMCO is limited or prohibited from holding or providing due to its election to be taxed as a REIT. AIMCO is finalizing which assets will be contributed to CK. Any transfer of assets or services to CK will be at market rates and approved by the independent members of AIMCO's Board of Directors, and if market rates are difficult to ascertain, there is no guarantee that the pricing will favor AIMCO. Pursuant to the Contribution Agreement, AIMCO will contribute certain assets to CK and, in return, the stock of CK will be contributed to AIMCO or one of its subsidiaries. Following the contribution of CK stock, AIMCO will agree to contribute additional assets to CK with the intent of creating a stand-alone entity meeting the requirements for listing on the NYSE or NASDAQ National Market, and if AIMCO is successful in doing so, the stock of CK will be distributed to the stockholders of AIMCO. If AIMCO is unable to list the CK stock on the NYSE or NASDAQ National Market, CK will remain a direct or indirect subsidiary of AIMCO and AIMCO will pay to the former stockholders of CK an amount necessary to compensate the former CK stockholders for the value of such stock on January 31, 1998. Consummation of the transaction is subject to the approval of the independent members of AIMCO's board of directors. Stock Offering On February 19, 1998, AIMCO issued 4,200,000 shares of Class D Preferred Stock in a public offering. The net proceeds of $101.7 million from the offering were contributed by AIMCO to the Partnership in exchange for 4,200,000 Class D Preferred Units and were used to repay indebtedness under the BOA Credit Facility and to fund working capital requirements. Holders of the Class D Preferred Stock (which mirror those of the Class D Preferred Units) are entitled to receive, when, as and if declared by the Board of Directors, annual cash distributions equal to $2.1875 per share. The Class D Preferred Stock are senior to the Class A Common Shares as to distributions and liquidation. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distributions by AIMCO shall be made to any holders of Class A Common Shares, the holders of the Class D Preferred Stock shall be entitled to receive a liquidation preference of $25 per share, plus accrued and unpaid distributions. Property Acquisitions On February 4, 1998, the Partnership purchased Steeplechase Apartments, an apartment community containing 484 units, located in Tyler, Texas, for $9.8 million plus closing costs. The acquisition was funded with short-term borrowings under the BOA Credit Facility. F-33 160 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Issuance of High Performance Units On January 21, 1998, the Partnership sold an aggregate of 15,000 High Performance Units to a limited liability company formed by certain members of AIMCO's senior management and to AIMCO's non-employee directors, for $2.1 million in cash. Pending Acquisition On March 17, 1998, AIMCO entered into a definitive merger agreement to acquire the multi-family apartment management operations, and certain property holdings, of Insignia Financial Group, Inc. ("Insignia") for approximately $910 million, including the assumption of debt. Insignia is one of the largest managers of multi-family residential properties in the United States, having a management portfolio consisting of approximately 191,000 units as of December 31, 1997. Arbor Station Acquisition On April 15, 1998, the Partnership purchased Arbor Station, a 264-unit apartment community located in Montgomery, Alabama. Total consideration paid of $11.4 million was comprised of $9.9 million in cash, and 38,237 OP units valued at $1.5 million. Distribution Declared On April 16, 1998, AIMCO's Board of Directors, and AIMCO, as the General Partner, declared a cash distribution of $0.5625 per OP Unit for the quarter ended March 31, 1998, payable on May 14, 1998 to OP Unitholders of record on May 7, 1998. Heather Ridge Acquisition On April 30, 1998, the Partnership purchased Heather Ridge II, a 72-unit apartment community located in Arlington, Texas. Total consideration paid of $2.0 million was comprised of $0.8 million in cash and the assumption of $1.2 million in mortgage indebtedness. Increase in Unsecured Revolving Credit Facility In May 1998, the Partnership increased its borrowing capacity under the BOA Credit Facility to $155.0 million for a six-month period. At the conclusion of the six-month period, the maximum borrowing capacity returns to its original $50.0 million. The interest rate to be applied to the incremental borrowings is based on either LIBOR plus a margin of 0.9% or the aforementioned Bank of America reference rate. The additional borrowing capacity will be used to facilitate the closing of the Ambassador and Insignia mergers. Ambassador Merger On May 8, 1998, the Ambassador Merger was completed. Pursuant to the Ambassador Merger Agreement, all outstanding shares of Ambassador Common Stock were converted into AIMCO Class A Common Stock, at a conversion ratio of 0.553, resulting in the issuance of up to 6,578,833 shares of AIMCO Class A Common Stock. Concurrently, all outstanding options to purchase Ambassador Common Stock were converted into options to purchase AIMCO Class A Common Stock, at the same conversion ratio, or cash. Contemporaneously, with the consummation of the Ambassador Merger, the OP Merger was consummated. Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. F-34 161 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Landmark Acquisition On May 22, 1998, the Partnership purchased Landmark Apartments, a 101-unit apartment community located in Albuquerque, New Mexico. Total consideration paid of $5.2 million was comprised of $1.8 million in cash and 89,964 OP Units valued at $3.4 million. Citrus Grove Acquisition On June 5, 1998, the Partnership purchased Citrus Grove Apartments, a 198-unit apartment community located in Redlands, California for $7.5 million in cash. Villa La Paz Acquisition On June 5, 1998, the Partnership purchased Villa la Paz Apartments, a 96-unit apartment community located in Sun City, California for $3.8 million in cash. Interest Rate Lock Agreements Subsequent to March 31, 1998, the Partnership refinanced certain mortgage indebtedness relating to ten real estate partnerships, and realized losses under the September Hedge of approximately $3.9 million, which have been deferred and will be amortized over the life of refinanced debt. Legal In regards to the California Actions (see Note 12), at a hearing on the demurrers on January 9, 1998, the court sustained the AIMCO Parties' demurrers to each of the three causes of action in the two complaints, with leave to amend. On February 25, 1998, the plaintiffs filed a consolidated amended class and derivative complaint for damages (the "Consolidated Amended Complaint"). The Consolidated Amended Complaint has added as defendants the general partners of the English Partnerships and dropped certain defendants, including AIMCO/PAM Properties, L.P. The Consolidated Amended Complaint seeks compensatory and punitive damages and alleges six causes of action for breach of fiduciary duty (two separate causes of action), for an accounting, breach of the implied covenant of good faith and fair dealing, and for inducing breach of contract. Plaintiffs have also added allegations of alleged wrongful conduct in connection with the Partnership's second group of tender offers commenced in late 1997. On March 27, 1998, the remaining AIMCO defendants and the general partners of the English Partnerships filed demurrers to the Consolidated Amended Complaint. On May 22, 1998, the Court overruled the demurrers. Trial is scheduled to begin on October 5, 1998. F-35 162 AIMCO PROPERTIES, L.P. CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER UNIT DATA) ASSETS
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (UNAUDITED) Real estate, net of accumulated depreciation of $330,365 and $153,285.................................................. $2,355,122 $1,503,922 Property held for sale...................................... 42,212 6,284 Investments in and notes receivable from unconsolidated subsidiaries.............................................. 127,082 84,459 Investments in and notes receivable from unconsolidated real estate Partnerships....................................... 246,847 212,150 Cash and cash equivalents................................... 43,681 37,088 Restricted cash............................................. 83,187 24,229 Accounts receivable......................................... 11,545 28,656 Deferred financing costs.................................... 21,835 12,793 Goodwill, net of accumulated amortization of $4,854 and $522...................................................... 120,503 125,239 Other assets................................................ 69,935 65,690 ---------- ---------- Total assets...................................... $3,121,949 $2,100,510 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable....................................... $ 774,676 $ 681,421 Secured tax-exempt bond financing........................... 399,925 74,010 Unsecured short-term financing.............................. 50,800 -- Secured short-term financing................................ 50,000 53,099 ---------- ---------- Total indebtedness................................ 1,275,401 808,530 ---------- ---------- Accounts payable, accrued and other liabilities............. 131,799 88,170 Resident security deposits and prepaid rents................ 13,171 10,213 ---------- ---------- Total liabilities................................. 1,420,371 906,913 ---------- ---------- Commitments and contingencies............................... -- -- Minority interests.......................................... 42,086 36,335 Redeemable Partnership Units................................ 232,405 197,086 Partners' Capital General and Special Limited Partner....................... 1,039,525 827,280 Preferred Units........................................... 387,562 134,579 Accumulated other comprehensive losses.................... -- (1,683) ---------- ---------- Total partners' capital........................... 1,427,087 960,176 ---------- ---------- Total liabilities and partners' capital........... $3,121,949 $2,100,510 ========== ==========
See accompanying notes to consolidated financial statements. F-36 163 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED)
FOR THE NINE MONTHS ENDED ------------------------------- SEPT. 30, 1998 SEPT. 30, 1997 -------------- -------------- RENTAL PROPERTY OPERATIONS Rental and other property revenues.......................... $ 265,700 $127,083 Property operating expenses................................. (101,600) (50,737) Owned property management expense........................... (7,746) (4,344) Depreciation................................................ (59,792) (23,848) --------- -------- Income from property operations............................. 96,562 48,154 --------- -------- SERVICE COMPANY BUSINESS Management fees and other income............................ 13,968 9,173 Management and other expenses............................... (8,101) (5,029) Corporate overhead allocation............................... (196) (441) Other assets depreciation and amortization.................. (3) (236) --------- -------- Income from service company business........................ 5,668 3,467 Minority interests in service company business.............. -- 48 --------- -------- Company's share of income from service company Business..... 5,668 3,515 --------- -------- General and administrative expenses......................... (7,444) (1,408) Interest expense............................................ (56,756) (33,359) Interest income............................................. 18,244 4,458 Minority interest in other partnerships..................... (1,052) (777) Equity in losses of unconsolidated partnerships............. (5,078) (463) Equity in earnings of unconsolidated subsidiaries........... 8,413 456 Amortization of goodwill.................................... (5,071) (711) --------- -------- Income from operations...................................... 53,486 19,865 Extraordinary item -- early extinguishment of debt.......... -- (269) Gain on disposition of properties........................... 2,783 (169) --------- -------- Net income $ 56,269 $ 19,427 --------- -------- Net income attributable to Preferred Unitholders............ $ 16,320 $ 835 ========= ======== Net income attributable to OP Unitholders................... $ 39,949 $ 18,592 ========= ======== Net income.................................................. $ 56,269 $ 19,427 Other comprehensive income: Net unrealized gains on investment in securities.......... -- 1,175 --------- -------- Comprehensive income........................................ $ 56,269 $ 20,602 ========= ======== Basic earnings per OP Unit.................................. $ 0.80 $ 0.77 ========= ======== Diluted earnings per OP Unit................................ $ 0.79 $ 0.77 ========= ======== Weighted average OP Units outstanding....................... 50,420 23,648 ========= ======== Weighted average OP Units and OP Unit equivalents outstanding............................................... 50,544 24,314 ========= ======== Distributions paid per OP Unit.............................. $ 1.6875 $ 1.3875 ========= ========
See accompanying notes to consolidated financial statements. F-37 164 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPT. 30, 1997 -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income................................................ $ 19,427 --------- Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization........................... 26,595 (Gain) loss on disposition of properties................ 169 Minority interests...................................... 777 Equity in earnings of unconsolidated partnerships....... 463 Equity in earnings of unconsolidated subsidiaries....... (456) Extraordinary loss on early extinguishment of debt...... 269 Changes in operating assets and operating liabilities... 6,191 --------- Total adjustments.................................. 34,008 --------- Net cash provided by operating activities.......... 53,435 --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (86,205) Additions to real estate.................................. (16,959) Proceeds from sale of property held for sale.............. 231 Additions to property held for sale....................... (139) Purchase of general and limited partnership interests..... (67,393) Purchase of/additions to notes receivable................. (39,918) Proceeds from repayments of notes receivable.............. -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 38,000 Cash received in connection with Ambassador Merger........ -- Contribution to unconsolidated subsidiaries............... -- Purchase of NHP common stock.............................. (121,437) Purchase of investments held for sale..................... (19,881) Purchase of office equipment and leasehold improvements... (1,113) Redemption of OP Units.................................... -- --------- Net cash used in investing activities.............. (314,814) --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 94,111 Principal repayments on secured notes payable............. (4,451) Principal repayments on secured tax-exempt bond financing............................................... (1,056) Repayments on secured short-term financing................ (258,922) Net borrowings on the Company's revolving credit facilities.............................................. 140,680 Payment of loan costs, net of proceeds from interest rate hedge................................................... 1,346 Proceeds from issuance of OP Units and Preferred Units, net of underwriting and offering costs.................. 343,960 Repurchase of OP Units.................................... -- Principal repayments received on notes due from officers on OP Unit purchases.................................... 10,323 Payment of OP Unit distributions.......................... (28,135) Payment of distributions to limited partners.............. (3,872) Payment of Preferred Unit distributions................... -- Payment of distributions to OP Unitholders................ -- Proceeds from issuance of High Performance Units.......... -- --------- Net cash provided by financing activities.......... 293,984 --------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 32,605 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 13,170 --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 45,775 =========
See accompanying notes to consolidated financial statements. F-38 165 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS, EXCEPT SHARE AND OP UNIT DATA) 1998 NON CASH INVESTING AND FINANCING ACTIVITIES Purchase of Real Estate Secured notes payable assumed in connection with purchase of real estate............................................... $ 80,238 Real estate purchased in exchange of 867,751 Partnership Units ("OP Units") of AIMCO Properties, L.P. (the "Partnership")......................................... 29,339 -------- $109,577 ========
Purchase of Ambassador Apartments, Inc. In May 1998, the Company acquired all of the common stock of Ambassador Apartments, Inc. ("Ambassador"), par value $.01 per share, in exchange for 6,578,833 shares of AIMCO's Class A Common Stock, par value $.01 per share (the "Class A Common Stock") with a recorded value of $251.3 million (see Note 3). The aggregate purchase price consisted of the following: Real estate................................................. $713,596 Investment in real estate partnerships...................... 2,290 Restricted cash............................................. 35,523 Accounts receivable......................................... 7,953 Deferred financing costs.................................... 4,359 Other assets................................................ 2,319 Secured notes payable....................................... 37,162 Secured tax-exempt bond financing........................... 334,881 Unsecured short-term financing.............................. 31,550 Accounts payable, accrued and other liabilities............. 2,513 Resident security deposits and prepaid rents................ 8,898 Minority interests in other partnerships.................... 5,752 Partners' Capital........................................... 251,274
Property Held For Sale During the nine months ended September 30, 1998, the Company (as defined in Note 1) entered into sales agreements to sell four multifamily properties with a net book value of $42,106. These assets were reclassified to property held for sale. Receipt of Notes Payable From Officers During the nine months ended September 30, 1998, the Company issued notes receivable from officers for a total of $16,636 in connection with their purchase of 406,072 shares of Class A Common Stock. The notes receivable were contributed to the Partnership in exchange for 406,072 OP Units. Other During the nine months ended September 30, 1998, the Partnership issued an additional 194,208 OP Units with a recorded value of $4,045 in connection with the purchase of certain partnership interests. F-39 166 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED) During the nine months ended September 30, 1998, the Company obtained control of real estate partnerships that became consolidated. The non-cash effects are as follows: Real estate................................................. $22,089 Secured notes payable....................................... 4,679 Investment in and notes receivable from real estate partnerships.............................................. 16,683 Accounts payable, accrued and other liabilities............. 727
During the nine months ended September 30, 1998, AIMCO contributed certain assets and liabilities to unconsolidated subsidiaries and unconsolidated partnerships as follows: Investment in unconsolidated subsidiaries................... $34,300 Investment in unconsolidated partnerships................... 3,361 Restricted cash............................................. 552 Accounts receivable......................................... 13,972 Other assets................................................ 18,719 Accounts payable, accrued and other liabilities............. 62,011
1997 NON CASH INVESTING AND FINANCING ACTIVITIES Purchase of Real Estate Secured notes payable assumed in connection with purchase of real estate............................................... $ 63,446 Real estate purchased in exchange for 1,897,794 OP Units.... 55,906 -------- $119,352 ========
Purchase of 53.3% Interest in NHP Incorporated In May 1997, the Company acquired 2,866,071 shares of NHP Incorporated's ("NHP") common stock in exchange for 2,142,857 shares of AIMCO'S Class A Common Stock with a recorded value of $57,321. Subsequent to the purchase, the Company contributed the NHP common stock to AIMCO/NHP Holdings, Inc. ("ANHI"), an unconsolidated subsidiary formed in April 1997, in exchange for all of the shares of ANHI's nonvoting preferred stock, representing a 95% economic interest in ANHI. Concurrently with this contribution, ANHI obtained a loan in the amount of $72,600, and used the proceeds from the loan to purchase 3,630,002 additional shares of NHP common stock. In August and September 1997, AIMCO purchased 5,717,000 shares of NHP common stock from ANHI for an aggregate purchase price of $114,397, and purchased an additional 434,049 shares of NHP common stock from third parties, pursuant to a stock purchase agreement. Upon the completion of these transactions, AIMCO and ANHI owned a combined total of 6,930,122 shares of NHP common stock, representing 53.3% of NHP's outstanding common stock as of September 30, 1997. F-40 167 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED) Purchase of General and Limited Partnership Interests, Captive Insurance Subsidiary and Other Assets The historical cost of the assets and the liabilities assumed in connection with the purchase of NHP Partners, Inc., NHP Partners Two Limited Partners and their subsidiaries (the "NHP Real Estate Companies") were as follows: Real estate, net............................................ $ 174,545 Investment in real estate partnerships...................... 89,526 Restricted cash............................................. 6,051 Accounts receivable......................................... 12,743 Other assets................................................ 3,347 Secured notes payable....................................... (140,270) Accounts payable, accrued and other liabilities............. (50,153) Accrued management contract liability....................... (106,615) Resident security deposits and prepaid rent................. (1,025)
Property Held for Sale In the third quarter of 1997, the Company entered into contracts to sell five apartment communities with a net book value of $19,100. These assets were reclassified to property held for sale. Issuance of Notes Receivable Due from Officers During the nine months ended September 30, 1997, the Company issued notes receivable from officers for a total of $33,700 in connection with their purchase of 1,125,000 shares of Class A Common Stock. The notes receivable were contributed to the Partnership in exchange for 1,125,000 OP Units. Other During the nine months ended September 30, 1997, the Company reclassified $1,323 of other assets to real estate as a purchase price allocation adjustment. In addition, the Company wrote off $4,065 of other assets allocable to limited partners in partnerships controlled by the Company, to minority interests. During the nine months ended September 30, 1997, the Partnership issued an additional 198,218 OP Units with a recorded value of $6,653 in connection with the purchase of certain partnership interests in 1996. During the nine months ended September 30, 1997, the Company recorded unrealized gains on investments held for sale of $1,175. F-41 168 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) NOTE 1 -- ORGANIZATION AIMCO Properties, L.P. (the "Partnership" and, together with AIMCO (as defined below), consolidated entities and majority-owned subsidiaries, the "Company"), a Delaware limited partnership, was formed on May 16, 1994 to conduct the business of acquiring, developing, leasing and managing multi-family apartment properties. Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), is the General Partner (through its wholly owned subsidiary, AIMCO-GP, Inc., a Delaware corporation) and Special Limited Partner (through its wholly owned subsidiary, AIMCO-LP, Inc., a Delaware corporation), as defined in the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., as amended (the "Agreement"), of the Partnership. In addition, AIMCO is the holder of all Partnership Preferred Units ("Preferred Units") outstanding in the Partnership. The Limited Partners of the Partnership are individuals or entities that own limited partnership units in the Partnership ("OP Units"). After holding the OP Units for one year, the Limited Partners have the right to redeem their OP Units for cash, subject to the prior right of AIMCO to elect to acquire some or all of the OP Units tendered for redemption in exchange for shares of Class A Common Stock, on a one-for-one ratio. The Partnership, through its operating divisions and subsidiaries, was formed to hold and conduct substantially all of AIMCO's operations and manages the daily operations of AIMCO's business and assets. All employees are employees of the Partnership; AIMCO has no employees. According to the terms of the Agreement, the capital structure of the Partnership, in terms of the OP Units owned by the General Partner, the Special Limited Partner and the Preferred Units outstanding, is generally required to replicate the capital structure of AIMCO, with the only difference being the Partnership has additional OP Units outstanding which are owned by the Limited Partners. Therefore, AIMCO is required to contribute to the Partnership all proceeds from offerings of its Class A Common Stock, preferred stock, or any other equity offerings. In addition, substantially all of AIMCO's assets must be owned through the Partnership; therefore, AIMCO is generally required to contribute to the Partnership all assets acquired. In exchange for the contribution of offering proceeds or assets, AIMCO receives additional interests in the Partnership with similar terms (i.e., if AIMCO contributes proceeds of a preferred stock offering, AIMCO receives Preferred Units). AIMCO frequently consummates transactions for the benefit of the Partnership. For legal, tax or other business reasons, AIMCO may hold title or ownership of certain assets until they can be transferred to the Partnership. However, the Partnership has a controlling financial interest in all of AIMCO's assets in the process of transfer to the Partnership. At September 30, 1998, the Partnership had 54,143,507 OP Units outstanding, 750,000 Class B Preferred Units outstanding, 2,400,000 Class C Preferred Units outstanding, 4,200,000 Class D Preferred Units outstanding, 4,050,000 Class G Preferred Units outstanding, and 2,000,000 Class H Preferred Units outstanding. As of September 30, 1998, the Partnership owned or controlled 57,561 units in 207 apartment properties (the "Owned Properties"), held an equity interest in 75,050 units in 481 apartment properties (the "Equity Properties") and managed 67,929 units in 355 apartment properties for third party owners and affiliates (the "Managed Properties" and, together with the Owned Properties and Equity Properties, the "AIMCO Properties"), bringing the total managed portfolio to 200,540 units in 1,043 apartment properties. The apartment properties are located in 42 states, the District of Columbia and Puerto Rico. F-42 169 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- BASIS OF PRESENTATION Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Partnership and Partnership subsidiaries and limited partnerships in which the Partnership has a controlling financial interest. Interests held by limited partners in real estate partnerships controlled by the Partnership are reflected as Minority Interests. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in Unconsolidated Subsidiaries The Partnership has investments in numerous subsidiaries. Investments in entities in which the Partnership does not have control are accounted for under the equity method. Under the equity method, the Partnership's pro-rata share of the earnings or losses of the entity for the periods being presented is included in equity in earnings from unconsolidated subsidiaries. Investments in and Notes Receivable from Real Estate Partnerships The Company owns general and limited partnership interests in numerous partnerships that own multi-family apartment properties. Investments in real estate partnerships in which the Company does not have control are accounted for under the equity method. Under the equity method, the Company's pro-rata share of the earnings or losses of the entity for the periods being presented is included in equity in losses of unconsolidated partnerships. Redeemable Partnership Units The Partnership accounts for the outstanding common units not held by AIMCO as redeemable partnership units. These units are classified outside of permanent partners' capital in the accompanying balance sheet. The units are initially recorded at their fair value and subsequently adjusted based on the fair value at the balance sheet date as measured by the closing price of AIMCO's common stock on that date by the total number of units outstanding. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), which provides guidance with respect to the calculation and presentation of comprehensive income. Comprehensive income includes all transactions affecting partners' capital, including the traditional measure of net income, and excluding contributions from and distributions to OP Unitholders. Under SFAS 130, companies are required to present comprehensive income and its components on the face of the income statement and as a component of partners' capital on the face of the balance sheet. As required, the Partnership adopted SFAS 130 as of January 1, 1998 and restated the components of partners' capital for prior periods. Interim Information The accompanying unaudited consolidated financial statements of the Partnership as of September 30, 1998 and for the three and nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. F-43 170 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1997 included in the Registration Statement on Form 10/A. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. Reclassification Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. NOTE 3 -- REAL ESTATE In May 1998, AIMCO acquired, through a merger, Ambassador Apartments, Inc. ("Ambassador"), resulting in the issuance of up to 6,578,833 shares of Class A Common Stock. Ambassador owned 52 apartment communities with a total of 15,728 units located in Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas, and managed one property containing 252 units for an unrelated third party. AIMCO contributed the assets and liabilities of Ambassador to the Partnership in exchange for 6,578,833 OP Units. In addition to the merger with Ambassador, during the nine months ended September 30, 1998, the Partnership purchased 19 apartment communities containing 4,273 apartment units, as described below:
DATE NUMBER ACQUIRED PROPERTY LOCATION OF UNITS - -------- -------- -------- -------- 1/98.. Crossings at Bell Amarillo, TX 160 2/98.. Steeplechase Tyler, TX 484 3/98.. Casa Anita Phoenix, AZ 224 3/98.. San Marina Phoenix, AZ 399 3/98.. Cobble Creek Tucson, AZ 301 3/98.. Rio Cancion Tucson, AZ 379 3/98.. Sundown Village Tucson, AZ 330 4/98.. Arbor Station Montgomery, AL 264 4/98.. Heather Ridge Arlington, TX 72 5/98.. Landmark Albuquerque, NM 101 6/98.. Citrus Grove Redlands, CA 198 6/98.. Villa La Paz Sun City, CA 96 7/98.. Sunset Village Oceanside, CA 114 7/98.. Sunset Citrus Vista, CA 97 7/98.. Rancho Escondido Escondido, CA 334 8/98.. Atrium Plantation, FL 210 8/98.. Colony Bradenton, FL 166 9/98.. Fisherman's Landing Hillsborough County, FL 256 9/98.. Sun Lake Brandon, FL 88 ----- 4,273 =====
The aggregate consideration paid by the Partnership of $886.1 million (including Ambassador) consisted of $153.2 million in cash, 867,751 OP Units to limited partners valued at $29.3 million, 6,578,833 OP Units to the Special Limited Partners valued at $251.3 million and the assumption of $452.3 million of secured long-term indebtedness. The cash portions of the acquisitions were funded with borrowings under the Partnership's revolving credit facilities. F-44 171 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the nine months ended September 30, 1998, the Partnership sold two apartment communities containing an aggregate of 702 apartment units for aggregate sales price of $18.3 million, less selling costs of $0.3 million. The Partnership recognized aggregate gains of $3.4 million on the sales. The Partnership used the cash proceeds to pay down a portion of the outstanding balance on the BOA Credit Facility (as defined in Note 9) and to pay closing costs. As of September 30, 1998, the Partnership's management has indicated its intent to sell six properties. Accordingly, these properties have been reclassified from real estate to property held for sale on the consolidated balance sheet. NOTE 4 -- INTEREST RATE LOCK AGREEMENTS From time to time, the Partnership enters into interest rate lock agreements with major investment banking firms, in anticipation of refinancing debt. Interest rate lock agreements related to planned refinancing of identified variable rate indebtedness are accounted for as anticipatory hedges. Upon the refinancing of such indebtedness, any gain or loss associated with the termination of the interest rate lock agreement is deferred and recognized over the life of the refinanced indebtedness. In order for the interest rate lock to qualify as an anticipatory hedge, the following criteria must be met: (a) the refinance being hedged exposes the Partnership to interest rate risk; (b) the interest rate lock is designated as a hedge; (c) the significant characteristics and expected terms of the refinance are identified; and (d) it is probable that the refinance will occur. The Partnership believes that all four of the above qualifications have been met for interest rate lock agreements previously entered into. In the event that any of the above qualifications are not met, the interest rate lock agreement will not qualify as an anticipatory hedge, and any gain or loss realized on the interest rate lock agreement will be recognized in the current period's earnings. NOTE 5 -- COMMITMENTS High Performance Units In January 1998, the Partnership sold 15,000 Class I High Performance Partnership Units (the "High Performance Units") to a partnership owned by fourteen members of AIMCO's senior management, and to three of its independent directors for $2.1 million in cash. The High Performance Units have nominal value unless the total return of AIMCO's Class A Common Stock (defined as dividend income plus share price appreciation), over the three year period ending December 31, 2000, is at least 30% and exceeds the industry average, as determined by a peer group index, by at least 15% (the "Total Return"). At the conclusion of the three year period, if the Total Return of AIMCO's Class A Common Stock satisfies these criteria, the holders of the High Performance Units will receive distributions and allocations of income and loss from the Partnership in the same amounts and at the same times as would holders of a number of OP Units equal to the quotient obtained by dividing (i) the product of (a) 15% of the amount by which the Total Return of AIMCO's Class A Common Stock over the three year period exceeds the greater of 115% of a peer group index or 30% (such excess being the "Excess Return"), multiplied by (b) the weighted average market value of the Partnership's outstanding OP Units, by (ii) the market value of one share of Class A Common Stock at the end of the three year period. The three-year measurement period will be shortened in the event of a change of control of the Company. Unlike OP Units, the High Performance Units are not redeemable or convertible into Class A Common Stock, unless a change of control of the Company occurs. Because there is substantial uncertainty that the High Performance Units will have more than nominal value due to the required Total Return over the three-year term, the Partnership has not recorded any value to the High Performance Units. If the measurement period had ended September 30, 1998, the Excess Return would have been $16.5 million and the value of the High Performance Units would have been $2.5 million, and such High Performance Units would have had no dilutive effect on net income per unit. F-45 172 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 -- PARTNERS' CAPITAL Issuance of Preferred Units During 1998, AIMCO issued the following:
NET OPTION OF ANNUAL LIQUIDATION SHARES PROCEEDS REDEEM- DISTRIBUTION PREFERENCE DATES ISSUED (MILLIONS) ABLE ON RATE RATE ---------- --------- ---------- ---------- ------------ ------------ Class D Preferred Stock.... Feb., 1998 4,200,000 $101.5 Feb., 2003 $ 2.1875 $25 per unit Class G Preferred Stock.... Jul., 1998 4,050,000 $ 98.0 Jul., 2008 $2.34375 $25 per unit Class H Preferred Stock.... Aug., 1998 2,000,000 $ 48.1 Aug., 2003 $ 2.375 $25 per unit
The proceeds were contributed by AIMCO to the Partnership and the Partnership issued to AIMCO the same number of economically equivalent Class D, G and H Preferred Units. On or after the above listed redemption dates, AIMCO may redeem shares of Class D, G or H Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the above listed Class D, G and H Liquidation Preferences plus all accrued and unpaid distributions to the date fixed for redemption. Upon any such redemption, an equivalent number of Class D, G and H Preferred Units shall be redeemed. During the nine months ended September 30, 1998, AIMCO sold 442,126 shares of Class A Common Stock to certain members of AIMCO's management, at an average price of $36.90 per share. In payment for the stock, such members of management executed notes payable to AIMCO totaling $16.3 million, which bear interest at a fixed rate of 7.0% per annum, payable quarterly, and are due in ten years. The notes are secured by the stock purchased and are recourse as to 25% of the original amount borrowed. The notes receivable were contributed by AIMCO to the Partnership in exchange for 442,126 OP Units. During the nine months ended September 30, 1998, the Partnership received payments on notes payable from AIMCO's management of $8.1 million. Warrants On December 2, 1997, AIMCO issued warrants (the "Oxford Warrants") exercisable to purchase up to an aggregate of 500,000 shares of Class A Common Stock at $41 per unit. The Oxford Warrants were issued to affiliates of Oxford Realty Financial Group, Inc., a Maryland corporation ("Oxford"), in connection with the amendment of certain agreements pursuant to which the Partnership manages properties controlled by Oxford or its affiliates. The actual number of shares of Class A Common Stock for which the Oxford Warrants will be exercisable is based on certain performance criteria with respect to the Company's management arrangement with Oxford for each of the five years ending December 31, 2001. The Oxford Warrants are exercisable for six years after the determination of such criteria for each of the five years. The Oxford Warrants were valued at $1.2 million using the "Black-Scholes" model, which was additional consideration paid to acquire the property management contracts related to the properties controlled by Oxford or its affiliates. The Oxford Warrants were issued in a private transaction exempt from registration under the Securities Act pursuant to Section 4(2). Unit Repurchases During the nine months ended September 30, 1998, the Partnership repurchased 299,600 OP Units from AIMCO and, in turn, AIMCO repurchased 299,600 shares of Class A Common Stock on the open market for $11.0 million, or an average price of $36.68 per share. F-46 173 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- EARNINGS PER OP UNIT The following table illustrates the calculation of basic and diluted earnings per OP Unit for the three and nine months ended September 30, 1998 and 1997 (in thousands, except per unit data):
THREE THREE MONTHS MONTHS ENDED ENDED SEPT. 30, SEPT. 30, 1998 1997 -------------- -------------- Numerator: Net income............................................... $17,745 $ 7,963 Preferred Unit distributions............................. (7,670) (835) ------- ------- Numerator for basic and diluted earnings per OP Unit -- Income attributable to OP Unitholders............ $10,075 $ 7,128 ======= ======= Denominator: Denominator for basic earnings per OP Unit -- weighted Average number of shares of OP Units outstanding...... 52,896 27,969 Effect of dilutive securities............................ 627 185 ------- ------- Denominator for dilutive earnings per OP Unit.............. 53,523 28,154 ======= ======= Basic earnings per common OP Unit: Operations............................................... $ 0.18 $ 0.26 Gain on disposition of properties........................ 0.01 (0.01) Extraordinary item....................................... -- -- ------- ------- Total............................................ $ 0.19 $ 0.25 ======= ======= Diluted earnings per OP Unit: Operations............................................... $ 0.18 $ 0.26 Gain on disposition of properties........................ 0.01 (0.01) Extraordinary item....................................... -- -- ------- ------- Total............................................ $ 0.19 $ 0.25 ======= =======
F-47 174 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS NINE MONTHS ENDED ENDED SEPT. 30, SEPT. 30, 1998 1997 ----------- ----------- Numerator: Net income............................................... $ 56,269 $19,427 Preferred Unit distributions............................. (16,320) (835) -------- ------- Numerator for basic and diluted earnings per OP Unit -- Income attributable to OP Unitholders............ $ 39,949 $18,592 ======== ======= Denominator: Denominator for basic earnings per OP Unit -- weighted Average number of OP Units outstanding................ 50,420 23,648 Effect of dilutive securities............................ 124 666 -------- ------- Denominator for dilutive earnings per OP Unit.............. 50,544 24,314 ======== ======= Basic earnings per OP Unit: Operations............................................... $ 0.74 $ 0.79 Gain on disposition of properties........................ 0.06 (0.01) Extraordinary item....................................... -- (0.01) -------- ------- Total............................................ $ 0.80 $ 0.77 ======== ======= Diluted earnings per OP Unit: Operations............................................... $ 0.73 $ 0.79 Gain on disposition of properties........................ 0.06 (0.01) Extraordinary item....................................... -- (0.01) -------- ------- Total............................................ $ 0.79 $ 0.77 ======== =======
NOTE 8 -- PRO FORMA FINANCIAL STATEMENTS During the nine months ended September 30, 1998, the Company purchased Ambassador. During the nine months ended September 30, 1997, the Company purchased the NHP Real Estate Companies and, through an unconsolidated subsidiary, purchased a 53.3% interest in NHP Incorporated ("NHP"). The following unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997, have been prepared as if the above described transactions had occurred at the beginning of the period being reported on. The following Pro Forma Financial Information is based, in part, on the following historical financial statements: (i) the unaudited financial data of the Company for the nine months ended September 30, 1998 and 1997; (ii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998 and the nine months ended September 30, 1997; (iii) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997 (which have been restated to reflect NHP's subsidiary, WMF Group Ltd., as a discontinued operation), and (iv) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the five months ended May 31, 1997. F-48 175 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The pro forma financial statements are not necessarily indicative of what the Company's results of operations would have been assuming the completion of the described transactions at the beginning of the periods indicated, nor does it purport to project the Company's results of operations for any future period. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED)
FOR THE NINE FOR THE NINE MONTHS MONTHS ENDED ENDED SEPT. 30, 1998 SEPT. 30, 1997 -------------- -------------- Rental property operations.................................. $109,315 $74,988 Partnerships share of income from service company business.................................................. 5,668 1,999 Net income.................................................. $ 59,942 $17,500 ======== ======= Net income attributable to Preferred Unitholders............ $ 16,320 $ 835 ======== ======= Net income attributable to OP Unitholders................... $ 43,622 $16,665 ======== ======= Basic earnings per OP Unit.................................. $ 0.79 $ 0.53 ======== ======= Diluted earnings per OP Unit................................ $ 0.79 $ 0.53 ======== ======= Weighted average OP Units outstanding....................... 55,036 31,223 ======== ======= Weighted average OP Units and OP Unit equivalents Outstanding............................................... 55,250 31,889 ======== =======
NOTE 9 -- SUBSEQUENT EVENTS Insignia Merger On October 1, 1998, AIMCO, through a merger, acquired all of the multifamily business of Insignia Financial Group, Inc., a Delaware corporation ("Insignia") (the "Insignia Merger"). As merger consideration, AIMCO issued to former Insignia stockholders 8.4 million shares of its Class E Cumulative Convertible Preferred Stock (the "Class E Preferred Stock") and reserved an additional 0.5 million shares for options and warrants, in the aggregate. In addition, approximately $531 million in outstanding debt and other liabilities of Insignia and its subsidiaries became obligations of AIMCO and its subsidiaries. AIMCO contributed the substantial majority of the assets and liabilities acquired in the Insignia Merger to the Partnership in exchange for 8.4 million Class E Preferred Units, which are the substantial economic equivalent of Class E Preferred stock. Holders of Class E Preferred Stock, which have the same rights as holders of Class E Preferred Units, will be entitled to receive the same cash dividends per share as holders of Class A Common Stock. In addition, holders of Class E Preferred Stock, on the record date for payment to be set by AIMCO's board of directors, will be entitled to receive a special distribution in an aggregate amount of $50 million (the "Special Dividend"). After January 15, 1999, if any portion of the Special Dividend or any other dividend has yet to be declared and paid to the holders of Class E Preferred Stock, no dividends may be declared or paid or set apart for payment by AIMCO on the Class A Common Stock. On the close of business on the day on which the Special Dividend (or any remaining unpaid portion thereof) is paid to the holders of the Class E Preferred Stock, each share of Class E Preferred Stock will be automatically converted into one share of Class A Common Stock without any action on the part of AIMCO or the holders of such share of Class E Preferred Stock (the "Conversion Date"). If AIMCO at any time following the consummation of the Insignia Merger pays a dividend or makes a distribution, subdivides, F-49 176 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) combines, reclassifies, issues rights, options or warrants or makes any other distribution in securities in relation to its outstanding Class A Common Stock, then AIMCO will contemporaneously do the same with respect to the Class E Preferred Stock. In addition to the issuance of the Class E Preferred Stock, on October 1, 1998, the Company entered into a $300 million senior unsecured interim term loan agreement with an affiliate of Lehman Brothers, Inc. (the "Interim Term Loan Agreement"). The term loan matures in one year and bears interest at a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. The Company used the proceeds to refinance existing indebtedness outstanding of Insignia at the time of the merger. IPT Merger Agreement As a result of the Insignia Merger and contributions by AIMCO, the Partnership currently owns approximately 30% of the outstanding units of partnership interest of Insignia Properties, L.P., a Delaware limited partnership ("IPLP"). In addition, AIMCO owns approximately 51% of the outstanding shares of beneficial interest of Insignia Properties Trust, a Maryland REIT ("IPT"). As of September 30, 1998, IPLP primarily owns general and limited partnership interests in real estate limited partnerships that own an aggregate of 339 Properties. AIMCO and IPT have entered into a merger agreement, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT will merge with AIMCO, or one of its subsidiaries (the "IPT Merger"). The IPT Merger is expected to close in January 1999. As a result of the IPT Merger, AIMCO will acquire the remaining approximately 70% interest in IPLP that is currently owned by IPT. AIMCO will contribute the 70% interest in IPLP to the Partnership in exchange for OP Units. Subsequent to the IPT Merger and contribution by AIMCO, the Partnership will own 100% of IPLP. Issuance of Units In November 1998, AIMCO issued 1,000,000 shares of Class J Cumulative Convertible Preferred Stock, par value $0.01 per share ("Class J Preferred Stock") in a private placement for $100.0 million. AIMCO contributed the proceeds to the Partnership in exchange for 1,000,000 Class J Cumulative Convertible Preferred Units (the "Class J Preferred Units"). In addition, the Partnership purchased 250,000 shares of Class J Preferred Stock from AIMCO in exchange for a note payable of $25 million and issued an additional 250,000 Class J Preferred units to AIMCO. The holders of Class J Preferred Stock shall be entitled to receive, when and as declared by the AIMCO board of directors, dividends equal to (i) 7% per annum of the per share Liquidation Preference for the period beginning on and including the Issue Date and lasting until November 15, 1998; (ii) 8% per annum of the per share Liquidation Preference for the period beginning on and including November 15, 1998 and lasting until November 15, 1999; (iii) 9% per annum of the per share Liquidation Preference for the period beginning on and including November 15, 1999 and lasting until November 15, 2000; (iv) 9.5% per annum of the per share Liquidation Preference thereafter. Such dividends shall be cumulative from the Issue Date, whether or not in any Dividend Period or Periods such dividends shall be declared or there shall be funds of the Company legally available for the payment of such dividends. AIMCO may convert any or all of the Class J Preferred Stock into Class A Common Stock at a conversion price of $40 (equivalent to a conversion rate of 2.5 shares of Class A Common Stock for each share of Class J Preferred Stock) (a) after November 6, 2002, if the market price of the Class A Common Stock in the five most recent Trading Days is equal to or greater than $40 or; (b) at any time on or prior to November 6, 2002, if the Internal Rate of Return exceeds 12.5%. F-50 177 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Purchase of Properties: Subsequent to September 30, 1998, the Partnership purchased one multifamily property with a total of 219 units for total consideration of $8.1 million, consisting of $8.1 million in cash. The multifamily property is located in Arizona. Distribution Declared On October 22, 1998, the AIMCO-GP, Inc. board of directors and AIMCO, as the General Partner, declared a cash distribution of $0.5625 per unit of OP Unit for the quarter ended September 30, 1998, payable on November 13, 1998 to OP Unitholders of record on November 6, 1998. The AIMCO-GP, Inc. board of directors and AIMCO, as the General Partner, also declared a cash distribution of $0.225 per unit on the Class E Preferred Units for the period from October 1, 1998 through November 6, 1998, the record date for the Class E Preferred Unit. The distribution was paid on November 13, 1998. Revised Debt Agreement On October 1, 1998, the Company amended and restated its credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement was further amended on November 6, 1998 (the "First Amendment"). The credit agreement now provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million (collectively with the First Amendment, the "BOA Credit Facility"). The Partnership is the borrower under the BOA Credit Facility, but all obligations thereunder are guaranteed by AIMCO and certain subsidiaries. The annual interest rate under the BOA Credit Facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans, and between negative 0.25% and positive 0.5% in the case of base rate loans, depending upon a ratio of the Company's consolidated unsecured indebtedness to the value of certain unencumbered assets. The BOA Credit Facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The BOA Credit Facility provides for the conversion of the revolving facility into a three-year term loan. The availability of funds to the Company under the BOA Credit Facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants contained in the BOA Credit Facility require the Company to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the BOA Credit Facility limits the Company from distributing more than 80% of its Funds From Operations (as defined) (or such amounts as may be necessary for AIMCO to maintain its status as a REIT) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. F-51 178 APPENDIX A GLOSSARY Unless the context requires otherwise, the following terms used in this Prospectus have the respective meanings set forth below: "1994 Plan" means the 1994 Stock Option Plan of AIMCO. "1996 Dispositions" means the sale of 4 properties in August 1996 by the Company. "1996 Hedges" means hedging agreements entered into in 1996 between the AIMCO Operating Partnership and a New York investment banking company in connection with a refinancing of certain indebtedness. "1996 Plan" means the 1996 Stock Award and Incentive Plan of AIMCO. "1997 Acquisitions" means the Company's investments in unconsolidated subsidiaries and real estate partnerships during 1997. "1997 Housing Act" means the Multifamily Assisted Housing Reform and Affordability Act of 1997. "1997 Plan" means the 1997 Stock Award and Incentive Plan of AIMCO. "1997 Sold Properties" means the sale of 5 properties in 1997 by the Company. "1998 Acquisitions" means the Company's acquisition of the Ambassador Operating Partnership and the purchase of 19 properties during the first nine months of 1998. "1998 Sold Properties" means the sale of 2 properties in 1998 by the Company. "2530 Committee" means the HUD's Multifamily Participation Review Committee. "ACMs" means asbestos-containing materials. "ADA" means the Americans with Disabilities Act of 1990. "affordable" means, with respect to apartment units or residential properties, that such units or properties benefit from an interest rate or rental subsidy or are otherwise subject to governmental programs intended to provide housing to persons with low or moderate incomes. "Agreement" means the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. "AIMCO" means Apartment Investment and Management Company, a Maryland corporation. "AIMCO Board" means the board of directors of AIMCO. "AIMCO GP" means AIMCO-GP, Inc., a wholly owned subsidiary of AIMCO and the general partner of the AIMCO Operating Partnership. "AIMCO Index Price" means the average trading price of Class A Common Stock over the 20-day period ended five trading days prior to the effective time of the Insignia Merger, but in no event greater than $38.00. "AIMCO IPO" means AIMCO's initial public offering of Class A Common Stock in July 1994. "AIMCO Operating Partnership" means AIMCO Properties, L.P., a Delaware limited partnership. "AIMCO Operating Partnership Agreement" means the agreement of limited partnership of the AIMCO Operating Partnership. "AIMCO Parties" means the AIMCO Operating Partnership, [AIMCO-GP], AIMCO and AIMCO/ PAM Properties, L.P. A-1 179 "AIMCO Properties" means the Managed Properties, Owned Properties and Equity Properties. "AIMCO Stock" means the Class A Common Stock and the Preferred Stock. "Ambassador" means Ambassador Apartments, Inc. "Ambassador Common Stock" means the common stock, par value $.01 per share, of Ambassador. "Ambassador Merger" means the merger of Ambassador with and into AIMCO on May 8, 1998. "Ambassador Merger Agreement" means the agreement and plan of merger, dated December 23, 1997, entered into by AIMCO and Ambassador. "Ambassador Operating Partnership" means Ambassador Apartments, L.P., a Delaware limited partnership. "AMIT" means Angeles Mortgage Investment Trust. "AMTI" means alternative minimum taxable income. "ANHI" means AIMCO/NHP Holdings, Inc. "ANPI" means AIMCO/NHP Properties, Inc. "APB 15" means the Accounting Principles Board Opinion No. 15. "APB 25" means the Accounting Principles Board Opinion No. 25 -- Accounting for Stock Issued to Employees. "Assignee" means any person to whom one or more OP Units have been transferred. "Bank of America" means Bank of America National Trust and Savings Association. "Base Rate" means quarterly cash dividends per share equal to $1.78125. "BOA Credit Facility" means the $100 million unsecured revolving credit facility entered into in October 1, 1998 between the Company, Bank of America, and BankBoston, N.A. "Book-Tax Difference" means, generally, the difference between the fair market value of the contributed property at the time of contribution, and the adjusted tax basis of such property at the time of contribution. "Built-in Gain" means to be subject to tax at the highest regular corporate tax rate on the excess, if any, of the fair market value over the adjusted basis of any particular asset as of the beginning of a ten-year period. "business combinations" has the meaning given such term in the MGCL. "Bylaws" means the bylaws of AIMCO. "California Actions" means the two complaints filed in Superior Court of the State of California against the Company and the J.W. English Companies. "Capital Account" has the meaning given to such term in the AIMCO Operating Partnership Agreement. "capital assets" means property held for investment. "Capital Replacement" means capitalized spending which maintains a property. "Charter" means AIMCO's charter. "CK" means CK Services, Inc. "Class A Common Stock" means the Class A Common Stock, par value $.01 per share, of AIMCO. "Class B Parity Stock" means capital stock of AIMCO that ranks on parity with Class B Preferred Stock with respect to payments of dividends or upon liquidation, dissolution, winding up or otherwise. A-2 180 "Class B Partnership Preferred Units" means the Class B Partnership Preferred Units of the AIMCO Operating Partnership. "Class B Preferred Ownership Limit" means a number of shares of Class B Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class B Preferred Stock that are owned by such holder. "Class B Preferred Stock" means the Class B Cumulative Convertible Preferred Stock, par value $.01 per share, of AIMCO. "Class C Junior Stock" means Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class C Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class C Liquidation Preference" means the liquidation preference of $25 per share on the Class C Preferred Stock. "Class C Parity Stock" means the Class B Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class C Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class C Partnership Preferred Units" means the Class C Partnership Preferred Units of the AIMCO Operating Partnership. "Class C Preferred Stock" means the Class C Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class C Senior Stock" means any class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class C Preferred Stock. "Class D Junior Stock" means Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class D Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class D Liquidation Preference" means the liquidation preference of $25 per share on the Class D Preferred Stock. "Class D Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class D Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class D Partnership Preferred Units" means the Class D Partnership Preferred Units of the AIMCO Operating Partnership. A-3 181 "Class D Preferred Stock" means the Class D Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class D Senior Stock" means any class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class D Preferred Stock. "Class E Partnership Preferred Units" means the Class E Partnership Preferred Units of the AIMCO Operating Partnership. "Class G Junior Stock" means the Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class G Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class G Liquidation Preference" means the liquidation preference of $25 per share on the Class G Preferred Stock. "Class G Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class G Partnership Preferred Units" means the Class G Partnership Preferred Units of the AIMCO Operating Partnership. "Class G Preferred Stock" means the Class G Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class G Senior Stock" means any class or series of capital stock of AIMCO which if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt of dividends of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class G Preferred Stock. "Class H Junior Stock" means the Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class H Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class H Liquidation Preference" means the liquidation preference of $25 per share on the Class H Preferred Stock. "Class H Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class J Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class H Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class H Partnership Preferred Units" means the Class H Partnership Preferred Units of the AIMCO Operating Partnership. "Class H Preferred Stock" means the Class H Cumulative Preferred Stock, par value $.01 per share, of AIMCO. "Class H Senior Stock" means any class or series of capital stock of AIMCO which if, pursuant to the specific terms of such class of stock or series, the holders of such class or series shall be entitled to the receipt A-4 182 of dividends of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class H Preferred Stock. "Class J Junior Stock" means the Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class J Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series. "Class J Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class J Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class J Partnership Preferred Units" means the Class J Partnership Preferred Units of the AIMCO Operating Partnership. "Class J Preferred Ownership Limit" means a number of shares of Class J Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case of certain pension trusts described in the Code, investment companies registered under the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO other than Class J Preferred Stock that are owned by such holder. "Class J Preferred Stock" means the Class J Cumulative Convertible Preferred Stock, par value $.01 per share, of AIMCO. "Class K Junior Stock" means the Common Stock and any other class or series of capital stock of AIMCO, if, pursuant to the specific terms of such class or series of stock, the holders of the Class K Preferred Stock are entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding up in preference or priority to the holders of shares of such class of series. "Class K Liquidation Preference" means the liquidation preference of $25 per share on the Class K Preferred Stock. "Class K Parity Stock" means the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other class or series of stock of AIMCO, if, pursuant to the specific terms of such class of stock or series, the holders of such class of stock or series and the Class K Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other. "Class K Partnership Preferred Units" means the Class K Partnership Preferred Units of the AIMCO Operating Partnership. "Class K Preferred Stock" means the Class K Partnership Preferred Stock, par value $.01 per share, of AIMCO. "Class K Senior Stock" means any class or series of capital stock of AIMCO which, if, pursuant to the specific terms of such class or series shall be entitled to the receipt of dividends of amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Class K Preferred Stock. "Class One Partnership Preferred Units" means the Class One Partnership Preferred Units, of the AIMCO Operating Partnership. "closely held" has the meaning given to such term in the Code. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Security and Exchange Commission. A-5 183 "Common OP Unitholders" means the holders of Common OP Units. "Common OP Units" means Partnership Common Units of the AIMCO Operating Partnership. "Common Stock" means the Class A Common Stock and the Class B Common Stock. "Company" means AIMCO, together with its consolidated subsidiaries, including the AIMCO Operating Partnership, except in "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership," it means the AIMCO Operating Partnership together with its subsidiaries, other controlled entities and entities in which it has a controlling financial interest. "Company Predecessors" means AIMCO and Property Asset Management, L.L.C., and its affiliated companies and PDI Realty Enterprises, Inc. "Consolidated Amended Complaint" means the consolidated amended complaint filed by plaintiffs on February 25, 1998 relating to the California Actions. "Contributing Partner" means a person contributing property to the AIMCO Operating Partnership in exchange for OP Units. "control share acquisition" means the acquisition of control shares, subject to certain exceptions. "control shares" means voting shares of stock that, if aggregated with all other shares of stock previously acquired by that person, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority or (iii) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. "Controlled NHP Partnerships" means the 15 partnerships in which the Company acquired a controlling interest after its acquisition of NHP Real Estate Companies. "Convertible Debentures" means the 6 1/2% Convertible Subordinated Debentures due in 2016 and assumed by AIMCO in the Insignia Merger. "Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO. "Credit Facilities" means the WMF Credit Facility, the BOA Credit Facility, and the Lehman Credit Facility. "Dallas Acquisition Properties" means the 12 multi-family apartment properties acquired by the AIMCO Operating Partnership. "Dallas Portfolio Acquisition" means the acquisition by the AIMCO Operating Partnership of general partnership interests in 21 limited partnerships. "Debt Coverage Ratio" means the ratio of EBITDA (less a provision of approximately $300 per owned apartment) to debt. "Delaware LP Act" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, or any successor to such statute. "DOJ" means the U.S. Department of Justice. "domestically controlled REIT" means a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Holders. "Eligible Class B Shares" means the number of shares of Class B Common Stock outstanding as of the Year-end Test Date which become eligible for automatic conversion into an equal number of shares of Class A Common Stock (subject to the Ownership Limit). "English Acquisition" means the Company's acquisition in November 1996 of certain partnership interests, real estate and related assets owned by the J.W. English Companies. A-6 184 "English Partnerships" means 31 limited partnerships, interests in which were purchased by the Company from the J.W. English Companies pursuant to the English Acquisition. "English Tender Offers" means the separate tender offers made by the AIMCO Operating Partnership to the limited partners of 25 of the English Partnerships. "EPA" means the U.S. Environmental Protection Agency. "EPA Letter" means the letter received by NHP in October 1997 from the DOJ. "Equity Properties" means the apartment properties in which AIMCO holds an equity interest. "established securities market" has the meaning given to such term in the Code. "Excess Return" means 15% of the amount by which the Total Return of AIMCO's Class A Common Stock over a three year period exceeds the greater of 115% of a peer group index or the Minimum Return. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exempt Organizations" means tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts. "Federal Action" means the class action lawsuit filed in November 1996 by purported limited partners of certain of the Tender Offer English Partnerships against the Company and J.W. English in the U.S. District Court for the Northern District of California. "FFO" means funds from operations. "FFO Per Share" means, for any period, (i) net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures, less any preferred stock dividend payments, divided by (ii) the sum of (a) the number of shares of the Class A Common Stock outstanding on the last day of such period (excluding any shares of the Class A Common Stock into which shares of the Class B Common Stock shall have been converted as a result of the conversion of shares of the Class B Common Stock on the last day of such period) and (b) the number of shares of the Class A Common Stock issuable to acquire units of limited partnership that (x) may be tendered for redemption in any limited partnership in which AIMCO serves as general partner and (y) are outstanding on the last day of such period. "FHAA" means the Fair Housing Amendments Act of 1988. "FIRPTA" means Foreign Investment in Real Property Tax Act of 1980. "First Amendment" means the amendment, dated November 6, 1998, to the BOA Credit Facility. "FNMA" means the Federal National Mortgage Association. "GAAP" means generally accepted accounting principles. "General Partner" means AIMCO-GP, Inc., a wholly-owned subsidiary of AIMCO and the general partner of the AIMCO Operating Partnership. "GMAC" means General Motors Acceptance Corporation. "GMAC Loans" means the 93 loans made by GMAC as of June 30, 1998 with an aggregate outstanding principal balance of $420.1 million to property owning partnerships of the Company, each of which is secured by the Owned Property of such partnership. "HAP Contracts" means Housing Assistance Payment Contracts. "High Performance Units" means the OP Units designated as Class I High Performance Units. "HUD" means the U.S. Department of Housing and Urban Development. A-7 185 "IFG" means Insignia Financial Group, Inc. "Indemnitee" means the AIMCO Operating Partnership's directors and officers. "Insignia" means the Insignia Financial Group, Inc. "Insignia Merger" means the merger of Insignia with and into AIMCO. "Insignia Merger Agreement" means the merger agreement between AIMCO, the AIMCO Operating Partnership, Insignia and Holdings pursuant to which Insignia will be merged with and into AIMCO. "Insignia Multifamily Business" means the interests owned by Insignia in various entities and acquired by AIMCO in the Insignia Merger. "Insignia Partnerships" means the limited partnerships whose general partners are affiliates of Insignia. "Inspector General" means the inspector general of HUD. "Interested Stockholder" means any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation. "Interim Term Loan Agreement" means the $300 million senior unsecured interim term loan agreement entered into in October 1998 between AIMCO, the AIMCO Operating Partnership and an affiliate of Lehman Brothers, Inc. "IPLP" means Insignia Properties, L.P., a Delaware limited partnership. "IPT" means Insignia Properties Trust, a Maryland REIT, which is a majority owned subsidiary of Insignia. "IPT Merger" means the merger of IPT with and into AIMCO. "IPT Merger Agreement" means the merger agreement, dated October 1, 1998, between AIMCO and IPT. "IPT Shares" means the shares of beneficial interest of IPT, par value $.01 per share. "IRS" means the Internal Revenue Service. "J.W. English Companies" means J.W. English, a Houston, Texas-based real estate syndicator and developer, and certain affiliated entities. "Lehman Credit Facility" means the $300 million senior unsecured interim one-year term loan entered into on October 1, 1998 between the Company and an affiliate of Lehman Brothers, Inc. "LDP" means a limited denial of participation by any HUD office. "Liquidating Event" means any of the following: (i) December 31, 2093; (ii) an event of withdrawal, as defined in the Delaware LP Act (including, without limitation, bankruptcy), of the sole AIMCO GP unless, within ninety (90) days after the withdrawal, a majority in interest (as such phrase is used in Section 17-801(3) of the Delaware LP Act) of the remaining OP Unitholders agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment, effective as of the date of withdrawal, of a successor AIMCO GP; (iii) an election to dissolve the AIMCO Operating Partnership made by the AIMCO GP in its sole and absolute discretion, with or without the consent of the OP Unitholders; (iv) entry of a decree of judicial dissolution of the AIMCO Operating Partnership pursuant to the provisions of the Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or (vi) the Redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special Limited A-8 186 Partner) of all Common OP Units other than Common OP Units held by the AIMCO GP or the Special Limited Partner. "Majority in Interest" means OP Unitholders (other than (i) the Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))) holding more than fifty percent (50%) of the outstanding Common OP Units held by all OP Unitholders (other than (i) the Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))). "Managed Properties" means the apartment properties managed by AIMCO for third party owners and affiliates. "Management Agreement" means the agreement between AIMCO and the AIMCO Operating Partnership. "Management Subsidiaries" means PAMS LP and the other subsidiaries of the Company that manage the Managed Properties. "March Hedge" means the interest rate hedging agreement entered into in March 1997 between the Company and an investment banking company in anticipation of certain indebtedness. "Margin" means the additional interest rate added to the interest rate under the BOA Credit Facility. "Measurement Period" means the January 1, 1998 to the Valuation Date. "MergerSub" means the Delaware limited partnership owned by the AIMCO Operating Partnership. "MGCL" means the Maryland General Corporation Law. "Minimum Return" means a 30% cumulative Total Return over three years. "NAREIT" means the National Association of Real Estate Investment Trusts. "NHP" means NHP Incorporated. "NHP Properties" means the 534 multifamily apartment properties containing 87,689 apartment units, a captive insurance subsidiary and certain related assets. "NHP Real Estate Companies" means a group of companies previously owned by NHP that hold interests in the NHP Properties. "NHP Warrants" means the warrants exercisable to purchase an aggregate of 399,999 shares of Class A Common Stock at $36 per share at any time prior to June 3, 2002. "NHPA&R" means NHP A&R Services, Inc. "NHPMC" means NHP Property Management Corporation. "Non-Qualified Plan" means the Non-Qualified Employee Stock Option Plan of AIMCO. "Non-U.S. Holder" means any person other than (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States fiduciaries have the authority to control all substantial decisions of such trust. "NYSE" means the New York Stock Exchange. A-9 187 "October Hedge" means the hedging agreement entered into in October 1997 by the AIMCO Operating Partnership in connection with the acquisition of Foxchase Apartments. "OP Merger" means the merger of the Ambassador Operating Partnership with and into the AIMCO Operating Partnership. "OP Unitholder" means a holder of OP Units. "OP Units" means Preferred OP Units and the Common OP Units. "Owned Properties" means the apartment properties owned or controlled by AIMCO. "Owners" means the AIMCO Operating Partnership, AIMCO and certain single asset wholly-owned subsidiaries of the Company. "Ownership Limit" means the limit by the AIMCO Charter of direct or constructive ownership of shares of Class A Common Stock representing more than 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the combined total of outstanding shares of AIMCO's Class A Common Stock or Class B Common Stock by any person. "Oxford" means Oxford Realty Financial Group, Inc., a Maryland corporation. "Oxford Warrants" means the warrants exercisable to purchase an aggregate of 500,000 shares of Class A Common Stock at $41 per share. "Partner" means the AIMCO GP or an OP Unitholder, and "Partners" means the AIMCO GP and the OP Unitholders. "Partnership" shall mean AIMCO Properties, L.P., a Delaware limited partnership. "Partnership Tax Items" means partnership tax items including partnership income, gains, losses, deductions, and credits. "Preferred OP Units" means Partnership Preferred Units of the AIMCO Operating Partnership. "Preferred Share Investor" means the institutional investor to whom AIMCO issued 750,000 shares of Class B Preferred Stock in a private transaction. "Preferred Share Purchase Agreement" means the agreement pursuant to which AIMCO issued the Class B Preferred Stock. "Preferred Stock" means the preferred stock of AIMCO, par value $.01 per share. "Prospectus" means this prospectus, as it may be further supplemented or amended from time to time. "Prospectus Supplement" means a prospectus supplement accompanying the Prospectus. "PTP Regulations" means the Treasury Regulations generally effective for taxable years beginning after December 31, 1995. "publicly traded" has the meaning given to such term in the Code. "publicly traded partnership" means a partnership classified as a publicly traded partnership for federal income tax purposes. "qualifying income" means, in general, income which includes interest, dividends, real property rents (as defined by Section 856 of the Code) and gain from the sale or disposition of real property. "QRSs" means the entities in which the AIMCO Operating Partnership does not own any interest. "readily tradable" has the meaning given to such term in the Code. "Redemption" means to redeem all or a portion of the Common OP Units held by a Common OP Unitholder and certain Assignees in exchange for a cash amount based on the value of shares of Class A Common Stock. A-10 188 "Registration Statement" means the registration statement on Form S-4 of which the Prospectus forms a part, together with all amendments and exhibits, filed by AIMCO and the AIMCO Operating Partnership with the Commission. "regularly traded" has the meaning given to such term in the Treasury Regulations. "REIT" means a real estate investment trust. "REIT Requirements" means the requirements for qualifying a REIT under the Code. "REIT Taxable Income" has the meaning given to such term in the Code and the Treasury Regulations. "Schedule K-1" means the report which the AIMCO Operating Partnership furnishes to each OP Unitholder that sets forth his allocable share of income, gains, losses and deductions. "secondary market" has the meaning given to such term in the Code. "Section 751 Assets" has the meaning given to such term in the Code. "Section 8" means Section 8 of the United States Housing Act of 1937. "Securities" means the Preferred Stock, the Class A Common Stock and the OP Units. "Securities Act" means the Securities Act of 1933, as amended. "Securityholders" means persons who may receive from AIMCO or the AIMCO Operating Partnership Securities covered by the Registration Statement in acquisitions and who may be entitled to offer such Securities under circumstances requiring the use of a Prospectus. "September Hedge" means the interest rate agreement entered into in September 1997 between the Company and an investment banking company. "SFAS 123" means the Statement of Financial Accounting Standards No. 23 -- Accounting for Stock-Based Compensation. "SFAS 128" means the Statement of Financial Accounting Standards No. 128 -- Earnings Per Share. "SFAS 130" means the Statement of Financial Accounting Standards No. 130 -- Reporting Comprehensive Income. "SFAS 131" means the Statement of Financial Accounting Standards No. 131 -- Disclosures about Segments of an Enterprise and Related Information. "SMP" means SMP I, L.L.C., a Delaware limited liability company. "Special Dividend" means the special dividend of $50 million in the aggregate of which holders of Class E Preferred Stock will be entitled to receive a pro rata share. "Special Limited Partner" means AIMCO-LP, Inc., a limited partner in the AIMCO Operating Partnership. "Subsidiary Partnerships" means other limited partnerships and limited liability companies in which AIMCO has a controlling interest. "Tax Matters Partner" means AIMCO GP, which is authorized, but not required, to take certain actions on behalf of the AIMCO Operating Partnership with respect to tax matters. "Tender Offer English Partnerships" means the 25 English Partnerships that received English Tender Offers. "Terminating Capital Transaction" means the sale or other disposition of all or substantially all of the assets of the AIMCO Operating Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the AIMCO Operating Partnership. "TMT" means tentative minimum tax. A-11 189 "TNRCC" means the Texas Natural Resources Conservation Commission. "Total Return" means, for any security and for any period, the cumulative total return for such security over such period, as measured by (i) the sum of (a) the cumulative amount of dividends paid in respect of such security for such period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) an amount equal to (x) the security price at the end of such period, minus (y) the security price at the beginning of such period, divided by (ii) the security price at the beginning of the measurement period; provided, however, that if the foregoing calculation results in a negative number, the "Total Return" shall be equal to zero. "Treasury Regulations" means the Treasury regulations promulgated under the Code. "UBTI" means unrelated business taxable income. "UBTI Percentage" means the gross income derived by AIMCO from an unrelated trade or business (determined as if AIMCO were a pension trust) divided by the gross income of AIMCO for the year in which the dividends are paid. "Unconsolidated Partnership" means a limited partnership in which the AIMCO Operating Partnership will hold a 99% limited partnership interest and certain directors and officers of AIMCO will, directly or indirectly, hold a 1% general partner interest. "Unconsolidated Subsidiaries" means the unconsolidated subsidiaries of AIMCO, which from time to time, the Company has organized in order to satisfy certain requirements for AIMCO's continued qualification as a REIT. "Underlying Partnership" means another partnership other than the AIMCO Operating Partnership. "USRPI" means a United States Real Property Interest. "USRPI Capital Gains" means a distribution made by AIMCO to a Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs such as the properties beneficially owned by AIMCO. "Valuation Date" means the date that is the earlier of (i) January 1, 2001, or (ii) the date on which a change of control occurs. "voting stock" means the stock entitled to be cast generally in the election of directors. "Washington Mortgage" means Washington Mortgage Financial Group, Ltd. "Winthrop Portfolio" means the 35 residential apartment properties acquired by the AIMCO Operating Partnership in October 1997. "WMF Credit Facility" means the $50 million secured revolving credit facility entered into in February 1998 between the Company and Washington Mortgage. A-12 190 APPENDIX B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. A DELAWARE LIMITED PARTNERSHIP ------------------------ THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. DATED AS OF JULY 29, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 191 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINED TERMS............................................... B-1 ARTICLE 2 ORGANIZATIONAL MATTERS...................................... B-14 Section 2.1 Organization.................................. B-14 Section 2.2 Name.......................................... B-14 Section 2.3 Registered Office and Agent; Principal Office...................................................... B-14 Section 2.4 Power of Attorney............................. B-14 Section 2.5 Term.......................................... B-15 ARTICLE 3 PURPOSE..................................................... B-15 Section 3.1 Purpose and Business.......................... B-15 Section 3.2 Powers........................................ B-16 Section 3.3 Partnership Only for Purposes Specified....... B-16 Section 3.4 Representations and Warranties by the Parties..................................................... B-16 ARTICLE 4 CAPITAL CONTRIBUTIONS....................................... B-18 Section 4.1 Capital Contributions of the Partners......... B-18 Section 4.2 Issuances of Additional Partnership Interests................................................... B-18 Section 4.3 Additional Funds.............................. B-19 Section 4.4 Stock Option Plans............................ B-20 Section 4.5 No Interest; No Return........................ B-21 Section 4.6 Conversion of Junior Shares................... B-21 ARTICLE 5 DISTRIBUTIONS............................................... B-21 Section 5.1 Requirement and Characterization of Distributions............................................... B-21 Section 5.2 Distributions in Kind......................... B-21 Section 5.3 Amounts Withheld.............................. B-22 Section 5.4 Distributions Upon Liquidation................ B-22 Section 5.5 Restricted Distributions...................... B-22 ARTICLE 6 ALLOCATIONS................................................. B-22 Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.................................. B-22 Section 6.2 General Allocations........................... B-22 Section 6.3 Additional Allocation Provisions.............. B-22 Section 6.4 Tax Allocations............................... B-24 ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS....................... B-24 Section 7.1 Management.................................... B-24 Section 7.2 Certificate of Limited Partnership............ B-27 Section 7.3 Restrictions on General Partner's Authority... B-27 Section 7.4 Reimbursement of the General Partner.......... B-29 Section 7.5 Outside Activities of the Previous General Partner and the General Partner............................. B-29
i 192
PAGE ---- Section 7.6 Contracts with Affiliates..................... B-30 Section 7.7 Indemnification............................... B-30 Section 7.8 Liability of the General Partner.............. B-32 Section 7.9 Other Matters Concerning the General Partner..................................................... B-32 Section 7.10 Title to Partnership Assets................... B-33 Section 7.11 Reliance by Third Parties..................... B-33 ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................. B-34 Section 8.1 Limitation of Liability....................... B-34 Section 8.2 Management of Business........................ B-34 Section 8.3 Outside Activities of Limited Partners........ B-34 Section 8.4 Return of Capital............................. B-34 Section 8.5 Rights of Limited Partners Relating to the Partnership................................................. B-34 Section 8.6 Redemption Rights of Qualifying Parties....... B-35 Section 8.7 Partnership Right to Call Limited Partner Interests................................................... B-38 ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... B-38 Section 9.1 Records and Accounting........................ B-38 Section 9.2 Fiscal Year................................... B-39 Section 9.3 Reports....................................... B-39 ARTICLE 10 TAX MATTERS................................................. B-39 Section 10.1 Preparation of Tax Returns.................... B-39 Section 10.2 Tax Elections................................. B-39 Section 10.3 Tax Matters Partner........................... B-39 Section 10.4 Withholding................................... B-40 ARTICLE 11 TRANSFERS AND WITHDRAWALS................................... B-41 Section 11.1 Transfer...................................... B-41 Section 11.2 Transfer of General Partner's Partnership Interest.................................................... B-41 Section 11.3 Limited Partners' Rights to Transfer.......... B-42 Section 11.4 Substituted Limited Partners.................. B-44 Section 11.5 Assignees..................................... B-44 Section 11.6 General Provisions............................ B-44 ARTICLE 12 ADMISSION OF PARTNERS....................................... B-46 Section 12.1 Admission of Successor General Partner........ B-46 Section 12.2 Admission of Additional Limited Partners...... B-46 Section 12.3 Amendment of Agreement and Certificate of Limited Partnership........................... B-46 Section 12.4 Admission of Initial Limited Partners......... B-46 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.................... B-47 Section 13.1 Dissolution................................... B-47 Section 13.2 Winding Up.................................... B-47
ii 193
PAGE ---- Section 13.3 Deemed Distribution and Recontribution........ B-48 Section 13.4 Rights of Limited Partners.................... B-48 Section 13.5 Notice of Dissolution......................... B-49 Section 13.6 Cancellation of Certificate of Limited Partnership................................................. B-49 Section 13.7 Reasonable Time for Winding-Up................ B-49 ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS.................................................... B-49 Section 14.1 Procedures for Actions and Consents of Partners.................................................... B-49 Section 14.2 Amendments.................................... B-49 Section 14.3 Meetings of the Partners...................... B-49 ARTICLE 15 GENERAL PROVISIONS.......................................... B-50 Section 15.1 Addresses and Notice.......................... B-50 Section 15.2 Titles and Captions........................... B-50 Section 15.3 Pronouns and Plurals.......................... B-50 Section 15.4 Further Action................................ B-50 Section 15.5 Binding Effect................................ B-50 Section 15.6 Waiver........................................ B-50 Section 15.7 Counterparts.................................. B-51 Section 15.8 Applicable Law................................ B-51 Section 15.9 Entire Agreement.............................. B-51 Section 15.10 Invalidity of Provisions...................... B-51 Section 15.11 Limitation to Preserve REIT Status............ B-51 Section 15.12 No Partition.................................. B-52 Section 15.13 No Third-Party Rights Created Hereby.......... B-52
iii 194
PAGE ---- EXHIBIT A PARTNERS AND PARTNERSHIP UNITS.............................. A-1 EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR........................ B-1 EXHIBIT C LIST OF DESIGNATED PARTIES.................................. C-1 EXHIBIT D INTENTIONALLY OMITTED....................................... D-1 EXHIBIT E NOTICE OF REDEMPTION........................................ E-1 EXHIBIT F FORM OF UNIT CERTIFICATE.................................... F-1 EXHIBIT G PARTNERSHIP UNIT DESIGNATION OF THE CLASS B PARTNERSHIP PREFERRED UNITS............................................. G-1 EXHIBIT H PARTNERSHIP UNIT DESIGNATION OF THE CLASS C PARTNERSHIP PREFERRED UNITS............................................. H-1 EXHIBIT I PARTNERSHIP UNIT DESIGNATION OF THE CLASS D PARTNERSHIP PREFERRED UNITS............................................. I-1 EXHIBIT J PARTNERSHIP UNIT DESIGNATION OF THE CLASS E PARTNERSHIP PREFERRED UNITS............................................. J-1 EXHIBIT K PARTNERSHIP UNIT DESIGNATION OF THE CLASS I HIGH PERFORMANCE PARTNERSHIP UNITS........................................... K-1 EXHIBIT L PARTNERSHIP UNIT DESIGNATION OF THE CLASS G PARTNERSHIP PREFERRED UNITS............................................. L-1 EXHIBIT M PARTNERSHIP UNIT DESIGNATION OF THE CLASS H PARTNERSHIP PREFERRED UNITS............................................. M-1 EXHIBIT N PARTNERSHIP UNIT DESIGNATION OF THE CLASS J PARTNERSHIP PREFERRED UNITS............................................. N-1 EXHIBIT O PARTNERSHIP UNIT DESIGNATION OF THE CLASS ONE PARTNERSHIP PREFERRED UNITS............................................. O-1 EXHIBIT P PARTNERSHIP UNIT DESIGNATION OF THE CLASS I PARTNERSHIP PREFERRED UNITS............................................. P-1
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS. THEY ARE AVAILABLE UPON REQUEST OF AIMCO PROPERTIES, L.P. iv 195 THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P., dated as of July 29, 1994, and amended and restated as of October 1, 1998, is entered into by and among Apartment Investment and Management Company, a Maryland corporation (the "Previous General Partner"), AIMCO-GP, Inc., a Delaware corporation (the "General Partner"), AIMCO-LP, Inc., a Delaware corporation (the "Special Limited Partner"), and the other Limited Partners (as defined below). WHEREAS, the General Partner has submitted, and the Limited Partners have approved, an amendment and restatement of the Agreement of Limited Partnership of AIMCO Properties, L.P. on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINED TERMS The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "Act" means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute. "Actions" has the meaning set forth in Section 7.7 hereof. "Additional Funds" has the meaning set forth in Section 4.3.A hereof. "Additional Limited Partner" means a Person who is admitted to the Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof and who is shown as such on the books and records of the Partnership. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) decrease such deficit by any amounts that such Partner is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Partner's Partnership Interest or is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of "Adjusted Capital Account Deficit" is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Adjustment Factor" means 1.0; provided, however, that in the event that: (i) the Previous General Partner (a) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (b) splits or subdivides its outstanding REIT Shares or (c) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for B-1 196 such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination; (ii) the Previous General Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares) at a price per share less than the Value of a REIT Share on the record date for such distribution (each a "Distributed Right"), then the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date plus the maximum number of REIT Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date plus a fraction (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the denominator of which is the Value of a REIT Share as of the record date; provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fraction; and (iii) the Previous General Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) above), which evidences of indebtedness or assets relate to assets not received by the Previous General Partner, the General Partner and/or the Special Limited Partner pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of shareholders entitled to receive such distribution by a fraction (i) the numerator shall be such Value of a REIT Share on the date fixed for such determination and (ii) the denominator shall be the Value of a REIT Share on the dates fixed for such determination less the then fair market value (as determined by the General Partner, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share. Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event, provided, however, that any Limited Partner may waive, by written notice to the General Partner, the effect of any adjustment to the Adjustment Factor applicable to the Partnership Common Units held by such Limited Partner, and, thereafter, such adjustment will not be effective as to such Partnership Common Units. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto. "Affiliate" means, with respect to any Person, any Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" means this Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., as it may be amended, supplemented or restated from time to time. "Applicable Percentage" has the meaning set forth in Section 8.6.B hereof. "Appraisal" means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner in good faith. Such opinion may B-2 197 be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership. "Assignee" means a Person to whom one or more Partnership Common Units have been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5 hereof. "Available Cash" means, with respect to any period for which such calculation is being made, (i) the sum, without duplication, of: (1) the Partnership's Net Income or Net Loss (as the case may be) for such period, (2) Depreciation and all other noncash charges to the extent deducted in determining Net Income or Net Loss for such period, (3) the amount of any reduction in reserves of the Partnership referred to in clause (ii)(6) below (including, without limitation, reductions resulting because the General Partner determines such amounts are no longer necessary), (4) the excess, if any, of the net cash proceeds from the sale, exchange, disposition, financing or refinancing of Partnership property for such period over the gain (or loss, as the case may be) recognized from such sale, exchange, disposition, financing or refinancing during such period (excluding Terminating Capital Transactions), and (5) all other cash received (including amounts previously accrued as Net Income and amounts of deferred income) or any net amounts borrowed by the Partnership for such period that was not included in determining Net Income or Net Loss for such period; (ii) less the sum, without duplication, of: (1) all principal debt payments made during such period by the Partnership, (2) capital expenditures made by the Partnership during such period, (3) investments in any entity (including loans made thereto) to the extent that such investments are not otherwise described in clause (ii)(1) or clause (ii)(2) above, (4) all other expenditures and payments not deducted in determining Net Income or Net Loss for such period (including amounts paid in respect of expenses previously accrued), (5) any amount included in determining Net Income or Net Loss for such period that was not received by the Partnership during such period, (6) the amount of any increase in reserves (including, without limitation, working capital reserves) established during such period that the General Partner determines are necessary or appropriate in its sole and absolute discretion, and (7) any amount distributed or paid in redemption of any Limited Partner Interest or Partnership Units including, without limitation, any Cash Amount paid. Notwithstanding the foregoing, Available Cash shall not include (a) any cash received or reductions in reserves, or take into account any disbursements made, or reserves established, after dissolution and the commencement of the liquidation and winding up of the Partnership or (b) any Capital Contributions, whenever received. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Denver, Colorado, Los Angeles, California or New York, New York are authorized or required by law to close. B-3 198 "Capital Account" means, with respect to any Partner, the Capital Account maintained by the General Partner for such Partner on the Partnership's books and records in accordance with the following provisions: (a) To each Partner's Capital Account, there shall be added such Partner's Capital Contributions, such Partner's distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner. (b) From each Partner's Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any liabilities of such Partner assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership. (c) In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest. (d) In determining the principal amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (e) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification provided that such modification will not have a material effect on the amounts distributable to any Partner without such Partner's Consent. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2. "Capital Contribution" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or 4.3 hereof or is deemed to contribute pursuant to Section 4.4 hereof. "Cash Amount" means the lesser of (a) an amount of cash equal to the product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount determined as of the applicable Valuation Date or (b) in the case of a Declination followed by a Public Offering Funding, the Public Offering Funding Amount. "Certificate" means the Certificate of Limited Partnership of the Partnership filed in the office of the Secretary of State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act. "Charter" means the Articles of Amendment and Restatement of the Previous General Partner filed with the Maryland State Department of Assessments and Taxation on July 19, 1994, as amended, supplemented or restated from time to time. "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. B-4 199 "Company Employee" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Consent" means the consent to, approval of, or vote in favor of a proposed action by a Partner given in accordance with Article 14 hereof. "Consent of the Limited Partners" means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by a Majority in Interest of the Limited Partners, in their reasonable discretion. "Contributed Property" means each Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (or deemed contributed to the Partnership on termination and reconstitution thereof pursuant to Code Section 708). "Controlled Entity" means, as to any Limited Partner, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Limited Partner or such Limited Partner's Family Members, (b) any trust, whether or not revocable, of which such Limited Partner or such Limited Partner's Family Members are the sole beneficiaries, (c) any partnership of which such Limited Partner is the managing partner and in which such Limited Partner or such Limited Partner's Family Members hold partnership interests representing at least twenty-five percent (25%) of such partnership's capital and profits and (d) any limited liability company of which such Limited Partner is the manager and in which such Limited Partner or such Limited Partner's Family Members hold membership interests representing at least twenty-five percent (25%) of such limited liability company's capital and profits. "Controlling Person" means any Person, whatever his or her title, who performs executive or senior management functions for the General Partner or its Affiliates similar to those of directors, executive management and senior management, or any Person who either holds a two percent (2%) or more equity interest in the General Partner or its Affiliates, or has the power to direct or cause the direction of the General Partner or its Affiliates, whether through the ownership of voting securities, by contract or otherwise, or, in the absence of a specific role or title, any Person having the power to direct or cause the direction of the management-level employees and policies of the General Partner or its Affiliates. It is not intended that every Person who carries a title such as vice president, senior vice president, secretary or treasurer be included in the definition of "Controlling Person." "Cut-Off Date" means the fifth (5th) Business Day after the General Partner's receipt of a Notice of Redemption. "Debt" means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person's interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized. "Declination" has the meaning set forth in Section 8.6.D hereof. "Depreciation" means, for each Fiscal Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction B-5 200 for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. "Designated Parties" means the Persons designated on Exhibit C attached hereto. The General Partner may, in its sole and absolute discretion, amend Exhibit C to add Persons to be designated as Designated Parties. "Distributed Right" has the meaning set forth in the definition of "Adjustment Factor." "Effective Date" means July 29, 1994. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Family Members" means, as to a Person that is an individual, such Person's spouse, ancestors, descendants (whether by blood or by adoption), brothers, sisters and inter vivos or testamentary trusts of which only such Person and his spouse, ancestors, descendants (whether by blood or by adoption), brothers and sisters are beneficiaries. "Fiscal Year" means the fiscal year of the Partnership, which shall be the calendar year. "Funding Debt" means any Debt incurred by or on behalf of the Previous General Partner, the General Partner or the Special Limited Partner for the purpose of providing funds to the Partnership. "General Partner" means AIMCO-GP, Inc., a Delaware corporation, and its successors and assigns, as the general partner of the Partnership in their capacities as general partner of the Partnership. "General Partner Interest" means the Partnership Interest held by the General Partner, which Partnership Interest is an interest as a general partner under the Act. A General Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or any other Partnership Units. "General Partner Loan" has the meaning set forth in Section 4.3.D hereof. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market values of such assets as determined by the General Partner and agreed to by the contributing Partner. In any case in which the General Partner and the contributing Partner are unable to agree as to the gross fair market value of any contributed asset or assets, such gross fair market value shall be determined by Appraisal. (b) The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clause (i), clause (ii), clause (iii), clause (iv) or clause (v) hereof shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, as of the following times: (i) the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.2 hereof or contributions or deemed contributions by the General Partner pursuant to Section 4.2 hereof) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; B-6 201 (iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); (iv) upon the admission of a successor General Partner pursuant to Section 12.1 hereof; and (v) at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. (c) The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner provided that, if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by Appraisal. (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d). (e) If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses. "Holder" means either (a) a Partner or (b) an Assignee, owning a Partnership Unit, that is treated as a member of the Partnership for federal income tax purposes. "Incapacity" or "Incapacitated" means, (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate's entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner's creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner's properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner's consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay. B-7 202 "Indemnitee" means (i) any Person made a party to a proceeding by reason of its status as (A) the Previous General Partner or the General Partner or (B) a director of the Previous General Partner or the General Partner or an officer or employee of the Partnership or the Previous General Partner or the General Partner and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. "Independent Director" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Interest" means interest, original issue discount and other similar payments or amounts paid by the Partnership for the use or forbearance of money. "IRS" means the Internal Revenue Service, which administers the internal revenue laws of the United States. "Junior Share" means a share of the Previous General Partner's Class B Common Stock, par value $.01 per share. "Limited Partner" means the Special Limited Partner and any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership. "Limited Partner Interest" means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units. "Liquidating Event" has the meaning set forth in Section 13.1 hereof. "Liquidator" has the meaning set forth in Section 13.2.A hereof. "Majority in Interest of the Limited Partners" means Limited Partners (other than (i) the Special Limited Partner and (ii) any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by the (a) General Partner or (b) any REIT as to which the General Partner is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))) holding more than fifty percent (50%) of the outstanding Partnership Common Units and Class I High Performance Partnership Units held by all Limited Partners (other than (i) the Special Limited Partner and (ii) any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by (a) the General Partner or (b) any REIT as to which the General Partner is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))). "Net Income" or "Net Loss" means, for each Fiscal Year of the Partnership, an amount equal to the Partnership's taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be added to (or subtracted from, as the case may be) such taxable income (or loss); (b) Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the case may be) such taxable income (or loss); B-8 203 (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of "Gross Asset Value," the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year; (f) To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and (g) Notwithstanding any other provision of this definition of "Net Income" or "Net Loss," any item that is specially allocated pursuant to Section 6.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3 hereof shall be determined by applying rules analogous to those set forth in this definition of "Net Income" or "Net Loss." "New Securities" means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase REIT Shares or Preferred Shares, excluding Junior Shares, Preferred Shares and grants under the Previous General Partner's Stock Option Plans, or (ii) any Debt issued by the Previous General Partner that provides any of the rights described in clause (i). "Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). "Nonrecourse Liability" has the meaning set forth in Regulations Section 1.752-1(a)(2). "Notice of Redemption" means the Notice of Redemption substantially in the form of Exhibit E attached to this Agreement. "Optionee" means a Company Employee, Partnership Employee or Independent Director to whom a stock option is granted under the Previous General Partner's Stock Option Plans. "Original Limited Partners" means the Persons listed as the Limited Partners on Exhibit A originally attached to this Agreement, without regard to any amendment thereto, and does not include any Assignee or other transferee, including, without limitation, any Substituted Limited Partner succeeding to all or any part of the Partnership Interest of any such Person. "Ownership Limit" means the applicable restriction on ownership of shares of the Previous General Partner imposed under the Charter. "Partner" means the General Partner or a Limited Partner, and "Partners" means the General Partner and the Limited Partners. "Partner Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3). B-9 204 "Partner Nonrecourse Debt" has the meaning set forth in Regulations Section 1.704-2(b)(4). "Partner Nonrecourse Deductions" has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). "Partnership" means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto. "Partnership Common Unit" means a fractional share of the Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but does not include any Partnership Preferred Unit or any other Partnership Unit specified in a Partnership Unit Designation as being other than a Partnership Common Unit; provided, however, that the General Partner Interest and the Limited Partner Interests shall have the differences in rights and privileges as specified in this Agreement. The ownership of Partnership Common Units may (but need not, in the sole and absolute discretion of the General Partner) be evidenced by the form of certificate for Partnership Common Units attached hereto as Exhibit F. "Partnership Employee" has the meaning ascribed thereto in the Previous General Partner's 1994 Stock Option Plan. "Partnership Interest" means an ownership interest in the Partnership held by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Common Units, Partnership Preferred Units or other Partnership Units. "Partnership Minimum Gain" has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). "Partnership Preferred Unit" means a fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.2 hereof that has distribution rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the Partnership Common Units. "Partnership Record Date" means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 hereof, which record date shall generally be the same as the record date established by the Previous General Partner for a distribution to its shareholders of some or all of its portion of such distribution. "Partnership Subsidiary" has the meaning ascribed thereto in the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan. "Partnership Unit" shall mean a Partnership Common Unit, a Partnership Preferred Unit or any other fractional share of the Partnership Interests that the General Partner has authorized pursuant to Section 4.2 hereof. "Partnership Unit Designation" shall have the meaning set forth in Section 4.2 hereof. "Percentage Interest" means, as to each Partner, its interest in the Partnership Units as determined by dividing the Partnership Units owned by such Partner by the total number of Partnership Units then outstanding. "Permitted Transfer" has the meaning set forth in Section 11.3.A hereof. "Person" means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity. "Pledge" has the meaning set forth in Section 11.3.A hereof. B-10 205 "Preferred Share" means a share of capital stock of the Previous General Partner now or hereafter authorized or reclassified that has dividend rights, or rights upon liquidation, winding up and dissolution, that are superior or prior to the REIT Shares. "Previous General Partner" means Apartment Investment and Management Company, a Maryland corporation. "Previous General Partner's 1994 Stock Option Plan" means the 1994 Stock Option Plan of Apartment Investment and Management Company and Affiliates. "Previous General Partner's Stock Option Plans" means the Previous General Partner's 1994 Stock Option Plan, the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan, the Amended and Restated Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan, the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan and any other stock option plan adopted by the Previous General Partner. "Primary Offering Notice" has the meaning set forth in Section 8.6.F(4) hereof. "Properties" means any assets and property of the Partnership such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Partnership may hold from time to time. "Public Offering Funding" has the meaning set forth in Section 8.6.D(2) hereof. "Public Offering Funding Amount" means the dollar amount equal to (i) the product of (x) the number of Registrable Shares sold in a Public Offering Funding and (y) the public offering price per share of such Registrable Shares in such Public Offering Funding, less (ii) the aggregate underwriting discounts and commissions in such Public Offering Funding. "Qualified Transferee" means an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. "Qualifying Party" means (a) an Original Limited Partner, (b) an Additional Limited Partner, (c) a Designated Party that is either a Substituted Limited Partner or an Assignee, (d) a Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with respect to any Notice of Redemption delivered to the General Partner within the time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner succeeding to all or part of the Limited Partner Interest of (i) an Original Limited Partner, (ii) an Additional Limited Partner, (iii) a Designated Party that is either a Substituted Limited Partner or an Assignee or (iv) a Family Member, or a lending institution who is the pledgee of a Pledge, who is the transferee in a Permitted Transfer. "Redeemable Units" means those Partnership Common Units issued to the Original Limited Partners as of the Effective Date together with such additional Partnership Common Units that, after the Effective Date, may be issued to Additional Limited Partners pursuant to Section 4.2 hereof. "Redemption" has the meaning set forth in Section 8.6.A hereof. "Registrable Shares" has the meaning set forth in Section 8.6.D(2) hereof. "Regulations" means the applicable income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Regulatory Allocations" has the meaning set forth in Section 6.3.B(viii) hereof. "REIT" means a real estate investment trust qualifying under Code Section 856. "REIT Partner" means (a) a Partner that is, or has made an election to qualify as, a REIT, (b) any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) of any Partner that is, or has made an election to qualify as, a REIT and (c) any Partner, including, without limitation, the General Partner B-11 206 and the Special Limited Partner, that is a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) of a REIT. "REIT Payment" has the meaning set forth in Section 15.11 hereof. "REIT Requirements" has the meaning set forth in Section 5.1.A hereof. "REIT Share" means a share of the Previous General Partner's Class A Common Stock, par value $.01 per share. Where relevant in this Agreement, "REIT Shares" includes shares of the Previous General Partner's Class A Common Stock, par value $.01 per share, issued upon conversion of Preferred Shares or Junior Shares. "REIT Shares Amount" means a number of REIT Shares equal to the product of (a) the number of Tendered Units and (b) the Adjustment Factor; provided, however, that, in the event that the Previous General Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the Previous General Partner's shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "Rights"), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the Previous General Partner in good faith. "Related Party" means, with respect to any Person, any other Person whose ownership of shares of the Previous General Partner's capital stock would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)). "Rights" has the meaning set forth in the definition of "REIT Shares Amount." "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Single Funding Notice" has the meaning set forth in Section 8.6.D(3) hereof. "Special Limited Partner" means AIMCO-LP, Inc., a Delaware corporation. "Specified Redemption Date" means the later of (a) the tenth (10th) Business Day after the receipt by the General Partner of a Notice of Redemption or (b) in the case of a Declination followed by a Public Offering Funding, the Business Day next following the date of the closing of the Public Offering Funding; provided, however, that no Specified Redemption Date shall occur during the first Twelve-Month Period; provided, further, that the Specified Redemption Date, as well as the closing of Redemption, or an acquisition of Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, on any Specified Redemption Date, may be deferred, in the General Partner's sole and absolute discretion, for such time (but in any event not more than one hundred fifty (150) days in the aggregate) as may reasonably be required to effect, as applicable, (i) a Public Offering Funding or other necessary funding arrangements, (ii) compliance with the Securities Act or other law (including, but not limited to, (a) state "blue sky" or other securities laws and (b) the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii) satisfaction or waiver of other commercially reasonable and customary closing conditions and requirements for a transaction of such nature. "Subsidiary" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person; provided, however, that, with respect to the Partnership, "Subsidiary" means solely a partnership or limited liability company (taxed, for federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation) of which the Partnership is a member unless the General Partner has received an unqualified opinion from independent counsel of recognized standing, or a ruling from the IRS, that the ownership of shares of stock of a corporation or other entity will B-12 207 not jeopardize the Previous General Partner's status as a REIT or the General Partner's or the Special Limited Partner's status as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), in which event the term "Subsidiary" shall include the corporation or other entity which is the subject of such opinion or ruling. "Substituted Limited Partner" means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 hereof. "Tax Items" has the meaning set forth in Section 6.4.A hereof. "Tendered Units" has the meaning set forth in Section 8.6.A hereof. "Tendering Party" has the meaning set forth in Section 8.6.A hereof. "Terminating Capital Transaction" means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership. "Transfer," when used with respect to a Partnership Unit, or all or any portion of a Partnership Interest, means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that when the term is used in Article 11 hereof, "Transfer" does not include (a) any Redemption of Partnership Common Units by the Partnership, or acquisition of Tendered Units by the Previous General Partner, pursuant to Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to any Partnership Unit Designation. The terms "Transferred" and "Transferring" have correlative meanings. "Twelve-Month Period" means (a) as to an Original Limited Partner or any successor-in-interest that is a Qualifying Party, a twelve-month period ending on the day before the first (1st) anniversary of the Effective Date or on the day before a subsequent anniversary thereof and (b) as to any other Qualifying Party, a twelve-month period ending on the day before the first (1st) anniversary of such Qualifying Party's becoming a Holder of Partnership Common Units or on the day before a subsequent anniversary thereof; provided, however, that the General Partner may, in its sole and absolute discretion, by written agreement with a Qualifying Party, shorten the first Twelve-Month Period to a period of less than twelve (12) months with respect to a Qualifying Party other than an Original Limited Partner or successor-in-interest. "Unitholder" means the General Partner or any Holder of Partnership Units. "Valuation Date" means the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day. "Value" means, on any Valuation Date with respect to a REIT Share, the average of the daily market prices for ten (10) consecutive trading days immediately preceding the Valuation Date (except that, as provided in Section 4.4.C. hereof, the market price for the trading day immediately preceding the date of exercise of a stock option under the Previous General Partner's Stock Option Plans shall be substituted for such average of daily market prices for purposes of Section 4.4 hereof). The market price for any such trading day shall be: (i) if the REIT Shares are listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, in either case as reported in the principal consolidated transaction reporting system, (ii) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or B-13 208 (iii) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; provided, however, that, if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the Value of the REIT Shares shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that the REIT Shares Amount includes Rights (as defined in the definition of "REIT Shares Amount") that a holder of REIT Shares would be entitled to receive, then the Value of such Rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE 2 ORGANIZATIONAL MATTERS Section 2.1 Organization. The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes. Section 2.2 Name. The name of the Partnership is "AIMCO Properties, L.P." The Partnership's business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners. Section 2.3 Registered Office and Agent; Principal Office. The address of the registered office of the Partnership in the State of Delaware is located at 32 Lockerman Square, Suite L-100, Dover, Delaware 19901, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is The Prentice-Hall Corporation System, Inc. The principal office of the Partnership is located at 1873 South Bellaire Street, Denver, Colorado 80222, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable. Section 2.4 Power of Attorney. A. Each Limited Partner and each Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: (1) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General B-14 209 Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article 11, Article 12 or Article 13 hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and (2) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner, effectuate the terms or intent of this Agreement. Nothing contained herein shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article 14 hereof or as may be otherwise expressly provided for in this Agreement. B. The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner or the Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer all or any portion of such Limited Partner's or Assignee's Partnership Units or Partnership Interest and shall extend to such Limited Partner's or Assignee's heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner's or the Liquidator's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership. Section 2.5 Term. The term of the Partnership commenced on May 16, 1994, the date that the original Certificate was filed in the office of the Secretary of State of Delaware in accordance with the Act, and shall continue until December 31, 2093 unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law. ARTICLE 3 PURPOSE Section 3.1 Purpose and Business. The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the Act, including, but not limited to, (i) to conduct the business of ownership, construction, development and operation of multifamily rental apartment communities, (ii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity engaged in any business permitted by or under the Act, (iii) to conduct the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, subsidiaries, business trusts, limited liability companies or other similar arrangements, and (iv) to do B-15 210 anything necessary or incidental to the foregoing; provided, however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit the Previous General Partner, in the sole and absolute discretion of the General Partner, at all times to be classified as a REIT. Section 3.2 Powers. A. The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership. B. Notwithstanding any other provision in this Agreement, the General Partner may cause the Partnership not to take, or to refrain from taking, any action that, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the Previous General Partner to continue to qualify as a REIT, (ii) could subject the Previous General Partner to any additional taxes under Code Section 857 or Code Section 4981 or (iii) could violate any law regulation of any governmental body or agency having jurisdiction over the Previous General Partner, the General Partner, their securities or the Partnership, unless such action (or inaction) under clause (i), clause (ii) or clause (iii) above shall have been specifically consented to by the Previous General Partner and the General Partner in writing. Section 3.3 Partnership Only for Purposes Specified. The Partnership shall be a limited partnership only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, venture or partnership between or among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act. Section 3.4 Representations and Warranties by the Parties. A. Each Partner that is an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to each other Partner(s) that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Partner will not result in a breach or violation of, or a default under, any material agreement by which such Partner any of such Partner's property is bound, or any statute, regulation, order or other law to which such Partner is subject, (ii) such Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such Partner does not own, directly or indirectly, (a) five percent (5%) or more of the total combined voting power of all classes of stock entitled to vote, or five percent (5%) or more of the total number of shares of all classes of stock, of any corporation that is a tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member or (b) an interest of five percent (5%) or more in the assets or net profits of any tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture, or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member and (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. B-16 211 B. Each Partner that is not an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to each other Partner(s) that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all necessary action, including, without limitation, that of its general partner(s), committee(s), trustee(s), beneficiaries, directors and/or shareholder(s), as the case may be, as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, charter or bylaws, as the case may be, any material agreement by which such Partner or any of such Partner's properties or any of its partners, members, beneficiaries, trustees or shareholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Partner or any of its partners, members, trustees, beneficiaries or shareholders, as the case may be, is or are subject, (iii) such Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iv) such Partner does not own, directly or indirectly, (a) five percent (5%) or more of the total combined voting power of all classes of stock entitled to vote, or five percent (5%) or more of the total number of shares of all classes of stock, of any corporation that is a tenant of either (I) the Previous General Partner, the General Partner, the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member or (b) an interest of five percent (5%) or more in the assets or net profits of any tenant of either (I) the Previous General Partner, the General Partner the Special Limited Partner or any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company for which the Previous General Partner, the General Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner or the Partnership is a member and (v) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms. C. Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) represents, warrants and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, nor with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Partner further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment. D. The representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the execution and delivery of this Agreement by each Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, liquidation and termination of the Partnership. E. Each Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied. B-17 212 ARTICLE 4 CAPITAL CONTRIBUTIONS Section 4.1 Capital Contributions of the Partners. The Partners have heretofore made Capital Contributions to the Partnership. Each Partner owns Partnership Units in the amount set forth for such Partner on Exhibit A, as the same may be amended from time to time by the General Partner to the extent necessary to reflect accurately sales, exchanges or other Transfers, redemptions, Capital Contributions, the issuance of additional Partnership Units, or similar events having an effect on a Partner's ownership of Partnership Units. Except as provided by law or in Section 4.2, 4.3 or 10.4 hereof, the Partners shall have no obligation or right to make any additional Capital Contributions or loans to the Partnership. Section 4.2 Issuances of Additional Partnership Interests. A. General. The General Partner is hereby authorized to cause the Partnership to issue additional Partnership Interests, in the form of Partnership Units, for any Partnership purpose, at any time or from time to time, to the Partners (including the General Partner and the Special Limited Partner) or to other Persons, and to admit such Persons as Additional Limited Partners, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole and absolute discretion, all without the approval of any Limited Partners. Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (i) upon the conversion, redemption or exchange of any Debt, Partnership Units or other securities issued by the Partnership, (ii) for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the General Partner and the Partnership, and (iii) in connection with any merger of any other Person into the Partnership if the applicable merger agreement provides that Persons are to receive Partnership Units in exchange for their interests in the Person merging into the Partnership. Subject to Delaware law, any additional Partnership Interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the General Partner, in its sole and absolute discretion without the approval of any Limited Partner, and set forth in a written document thereafter attached to and made an exhibit to this Agreement (each, a "Partnership Unit Designation"). Without limiting the generality of the foregoing, the General Partner shall have authority to specify (a) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Interests; (b) the right of each such class or series of Partnership Interests to share in Partnership distributions; (c) the rights of each such class or series of Partnership Interests upon dissolution and liquidation of the Partnership; (d) the voting rights, if any, of each such class or series of Partnership Interests; and (e) the conversion, redemption or exchange rights applicable to each such class or series of Partnership Interests. Upon the issuance of any additional Partnership Interest, the General Partner shall amend Exhibit A as appropriate to reflect such issuance. B. Issuances to the General Partner or Special Limited Partner. No additional Partnership Units shall be issued to the General Partner or the Special Limited Partner unless (i) the additional Partnership Units are issued to all Partners in proportion to their respective Percentage Interests, (ii) (a) the additional Partnership Units are (x) Partnership Common Units issued in connection with an issuance of REIT Shares, or (y) Partnership Units (other than Partnership Common Units) issued in connection with an issuance of Preferred Shares, New Securities or other interests in the Previous General Partner (other than REIT Shares), which Preferred Shares, New Securities or other interests have designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of the additional Partnership Units issued to the General Partner or the Special Limited Partner, and (b) the General Partner or the Special Limited Partner, as the case may be, contributes to the Partnership the cash proceeds or other consideration received in connection with the issuance of such REIT Shares, Preferred Shares, New Securities or other interests in the Previous General Partner, (iii) the additional Partnership Units are issued upon the conversion, redemption or exchange of Debt, Partnership Units or other securities issued by the Partnership, or (iv) the additional Partnership Units are issued pursuant to Section 4.6. B-18 213 C. No Preemptive Rights. No Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest. Section 4.3 Additional Funds. A. General. The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds ("Additional Funds") for the acquisition or development of additional Properties, for the redemption of Partnership Units or for such other purposes as the General Partner may determine. Additional Funds may be obtained by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.3 without the approval of any Limited Partners. B. Additional Capital Contributions. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by accepting Capital Contributions from any Partners or other Persons and issuing additional Partnership Units in consideration therefor. C. Loans by Third Parties. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt to any Person (other than the Previous General Partner, the General Partner or the Special Limited Partner) upon such terms as the General Partner determines appropriate, including making such Debt convertible, redeemable or exchangeable for Partnership Units; provided, however, that the Partnership shall not incur any such Debt if (i) breach, violation or default of such Debt would be deemed to occur by virtue of the Transfer of any Partnership Interest, or (ii) such Debt is recourse to any Partner (unless the Partner otherwise agrees). D. General Partner Loans. The General Partner, on behalf of the Partnership, may obtain any Additional Funds by causing the Partnership to incur Debt with the Previous General Partner, the General Partner or the Special Limited Partner (each, a "General Partner Loan") if (i) such Debt is, to the extent permitted by law, on substantially the same terms and conditions (including interest rate, repayment schedule, and conversion, redemption, repurchase and exchange rights) as Funding Deb incurred by the Previous General Partner, the General Partner or the Special Limited Partner, the net proceeds of which are loaned to the Partnership to provide such Additional Funds, or (ii) such Debt is on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party; provided, however, that the Partnership shall not incur any such Debt if (a) a breach, violation or default of such Debt would be deemed to occur by virtue of the Transfer of any Partnership Interest, or (b) such Debt is recourse to any Partner (unless the Partner otherwise agrees). E. Issuance of Securities by the Previous General Partner. The Previous General Partner shall not issue any additional REIT Shares, Preferred Shares, Junior Shares or New Securities unless (i) the Previous General Partner contributes the cash proceeds or other consideration received from the issuance of such additional REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, and from the exercise of the rights contained in any such additional New Securities, either or both of the General Partner and the Special Limited Partner, and (ii) it or they, as the case may be, contribute such cash proceeds or other consideration to the Partnership in exchange for (x) in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in the case of an issuance of Preferred Shares, Junior Shares or New Securities, Partnership Units with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such Preferred Shares, Junior Shares or New Securities; provided, however, that notwithstanding the foregoing, the Previous General Partner may issue REIT Shares, Preferred Shares, Junior Shares or New Securities (a) pursuant to Section 4.4 or Section 8.6.B hereof, (b) pursuant to a dividend or distribution (including any stock split) of REIT Shares, Preferred Shares, Junior Shares or New Securities to all of the holders of REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d) upon a conversion of Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or exercise of New Securities, or (f) in connection with an acquisition of a property or other asset to be owned, directly or indirectly, by the Previous General Partner if the General Partner determines that such acquisition is in the best interests of the Partnership. In the event of any issuance B-19 214 of additional REIT Shares, Preferred Shares, Junior Shares or New Securities by the Previous General Partner, and the contribution to the Partnership, by the General Partner or the Special Limited Partner, of the cash proceeds or other consideration received from such issuance, the Partnership shall pay the Previous General Partner's expenses associated with such issuance, including any underwriting discounts or commissions. Section 4.4 Stock Option Plans. A. Options Granted to Company Employees and Independent Directors. If at any time or from time to time, in connection with the Previous General Partner's Stock Option Plans, a stock option granted to a Company Employee or Independent Director is duly exercised: (1) The Special Limited Partner shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership in an amount equal to the exercise price paid to the Previous General Partner by such exercising party in connection with the exercise of such stock option. (2) Notwithstanding the amount of the Capital Contribution actually made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner shall be deemed to have contributed to the Partnership as a Capital Contribution, in consideration of an additional Limited Partner Interest (expressed in and as additional Partnership Common Units), an amount equal to the Value of a REIT Share as of the date of exercise multiplied by the number of REIT Shares then being issued in connection with the exercise of such stock option. (3) An equitable Percentage Interest adjustment shall be made in which the Special Limited Partner shall be treated as having made a cash contribution equal to the amount described in Section 4.4.A(2) hereof. B. Options Granted to Partnership Employees. If at any time or from time to time, in connection with the Previous General Partner's Stock Option Plans, a stock option granted to a Partnership Employee is duly exercised: (1) The General Partner shall cause the Previous General Partner to sell to the Partnership, and the Partnership shall purchase from the Previous General Partner, the number of REIT Shares as to which such stock option is being exercised. The purchase price per REIT Share for such sale of REIT Shares to the Partnership shall be the Value of a REIT Share as of the date of exercise of such stock option. (2) The Partnership shall sell to the Optionee (or if the Optionee is an employee of a Partnership Subsidiary, the Partnership shall sell to such Partnership Subsidiary, which in turn shall sell to the Optionee), for a cash price per share equal to the Value of a REIT Share at the time of the exercise, the number of REIT Shares equal to (a) the exercise price paid to the Previous General Partner by the exercising party in connection with the exercise of such stock option divided by (b) the Value of a REIT Share at the time of such exercise. (3) The Partnership shall transfer to the Optionee (or if the Optionee is an employee of a Partnership Subsidiary, the Partnership shall transfer to such Partnership Subsidiary, which in turn shall transfer to the Optionee) at no additional cost, as additional compensation, the number of REIT Shares equal to the number of REIT Shares described in Section 4.4.B(1) hereof less the number of REIT Shares described in Section 4.4.B(2) hereof. (4) The Special Limited Partner shall, as soon as practicable after such exercise, make a Capital Contribution to the Partnership of an amount equal to all proceeds received (from whatever source, but excluding any payment in respect of payroll taxes or other withholdings) by the Previous General Partner, the General Partner or the Special Limited Partner in connection with the exercise of such stock option. An equitable Percentage Interest adjustment shall be made in which the Special Limited Partner shall be treated as having made a cash contribution equal to the amount described in Section 4.4.B(1) hereof. B-20 215 C. Special Valuation Rule. For purposes of this Section 4.4, in determining the Value of a REIT Share, only the trading date immediately preceding the exercise of the relevant stock option under the Previous General Partner's Stock Option Plans shall be considered. D. Future Stock Incentive Plans. Nothing in this Agreement shall be construed or applied to preclude or restrain the Previous General Partner, the General Partner or the Special Limited Partner from adopting, modifying or terminating stock incentive plans, in addition to the Previous General Partner's Stock Option Plans, for the benefit of employees, directors or other business associates of the Previous General Partner, the General Partner, the Special Limited Partner, the Partnership any of their Affiliates. The Limited Partners acknowledge and agree that, in the event that any such plan is adopted, modified or terminated by the Previous General Partner, the General Partner or the Special Limited Partner amendments to this Section 4.4 may become necessary or advisable and that any approval or consent to any such amendments requested by the Previous General Partner, the General Partner or the Special Limited Partner shall not be unreasonably withheld or delayed. Section 4.5 No Interest; No Return. No Partner shall be entitled to interest on its Capital Contribution or on such Partner's Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership. Section 4.6 Conversion of Junior Shares. If, at any time, any of the Junior Shares are converted into REIT Shares, in whole or in part, then a number of Partnership Common Units equal to (i) the number of REIT Shares issued upon such conversion divided by (ii) the Adjustment Factor then in effect shall be issued to the General Partner and the Special Limited Partner (and between the General Partner and the Special Limited Partner in proportion to their ownership of Partnership Common Unit immediately preceding such conversion), and the Percentage Interests of the General Partner and the Limited Partners (including the Special Limited Partner) shall be adjusted to reflect such conversion. ARTICLE 5 DISTRIBUTIONS Section 5.1 Requirement and Characterization of Distributions. Subject to the terms of any Partnership Unit Designation, the General Partner shall cause the Partnership to distribute quarterly all, or such portion as the General Partner may in its sole and absolute discretion determine, of Available Cash generated by the Partnership during such quarter to the Holders of Partnership Common Units in accordance with their respective Partnership Common Units held on such Partnership Record Date. Except as otherwise provided in the terms of any Partnership Unit Designation, distributions payable with respect to any Partnership Units (other than Partnership Units held by the General Partner or the Special Limited Partner) that were not outstanding during the entire quarterly period in respect of which any distribution is made shall be prorated based on the portion of the period that such units were outstanding. The General Partner in its sole and absolute discretion may distribute to the Unitholders Available Cash on a more frequent basis and provide for an appropriate record date. The General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the Previous General Partner's qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable (i) the General Partner and the Special Limited Partner to transfer funds to the Previous General Partner and (ii) the Previous General Partner to pay shareholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (the "REIT Requirements") and (b) avoid any federal income or excise tax liability of the Previous General Partner. Section 5.2 Distributions in Kind. No right is given to any Unitholder to demand and receive property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in kind of Partnership assets to the Unitholders, and such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10 hereof. B-21 216 Section 5.3 Amounts Withheld. All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Unitholder shall be treated as amounts paid or distributed to such Unitholder pursuant to Section 5.1 hereof for all purposes under this Agreement. Section 5.4 Distributions Upon Liquidation. Notwithstanding the other provisions of this Article 5, net proceeds from a Terminating Capital Transaction, and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership, shall be distributed to the Unitholders in accordance with Section 13.2 hereof. Section 5.5 Restricted Distributions. Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Unitholder on account of its Partnership Interest or interest in Partnership Units if such distribution would violate Section 17-607 of the Act or other applicable law. ARTICLE 6 ALLOCATIONS Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss. Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Fiscal Year of the Partnership as of the end of each such year. Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that taken into account in computing Net Income or Net Loss. Section 6.2 General Allocations. Subject to the terms of any Partnership Unit Designation, except as otherwise provided in this Article 6 and subject to Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the Holders of Partnership Common Units in accordance with their respective Partnership Common Units at the end of each Fiscal Year. Section 6.3 Additional Allocation Provisions. Notwithstanding the foregoing provisions of this Article 6: A. Intentionally Omitted. B. Regulatory Allocations. (i) Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Holder of Partnership Common Units shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Holder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.B(i) is intended to qualify as a "minimum gain chargeback" within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (ii) Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Holder of Partnership Common Units who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Holder's share of the net decrease in Partner Minimum Gain attributable to such Partner B-22 217 Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner, Limited Partner and other Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(ii) is intended to qualify as a "chargeback of partner nonrecourse debt minimum gain" within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith. (iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Holders of Partnership Common Units in accordance with their Partnership Common Units. Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Holder(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i). (iv) Qualified Income Offset. If any Holder of Partnership Common Units unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Holder as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(iv) shall be made if and only to the extent that such Holder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(iv) were not in the Agreement. It is intended that this Section 6.3.B(iv) qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (v) Gross Income Allocation. In the event that any Holder of Partnership Common Units has a deficit Capital Account at the end of any Fiscal Year that is in excess of the sum of (1) the amount (if any) that such Holder is obligated to restore to the Partnership upon complete liquidation of such Holder's Partnership Interest (including, the Holder's interest in outstanding Partnership Preferred Units and other Partnership Units) and (2) the amount that such Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(v) shall be made if and only to the extent that such Holder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv) hereof were not in the Agreement. (vi) Limitation on Allocation of Net Loss. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Holder of Partnership Common Units, such allocation of Net Loss shall be reallocated among the other Holders of Partnership Common Units in accordance with their respective Partnership Common Units, subject to the limitations of this Section 6.3.B(vi). (vii) Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Holder of Partnership Common Units in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their Partnership Common Units in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. B-23 218 (viii) Curative Allocations. The allocations set forth in Sections 6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory Allocations") are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1 hereof, the Regulatory Allocations shall be taken into account in allocating other items of income, gain, loss and deduction among the Holders of Partnership Common Units so that to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Holder of a Partnership Common Unit shall be equal to the net amount that would have been allocated to each such Holder if the Regulatory Allocations had not occurred. C. Special Allocations Upon Liquidation. Notwithstanding any provision in this Article VI to the contrary, in the event that the Partnership disposes of all or substantially all of its assets in a transaction that will lead to a liquidation of the Partnership pursuant to Article XIII hereof, then any Net Income or Net Loss realized in connection with such transaction and thereafter (and, if necessary, constituent items of income, gain, loss and deduction) shall be specially allocated the Partners as required so as to cause liquidating distributions pursuant to Section 13.2.A(4) hereof to be made in the same amounts and proportions as would have resulted had such distributions instead been made pursuant to Section 5.1 hereof. D. Allocation of Excess Nonrecourse Liabilities. For purposes of determining a Holder's proportional share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Holder's interest in Partnership profits shall be such Holder's share of Partnership Common Units. Section 6.4 Tax Allocations. A. In General. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations each Partnership item of income, gain, loss and deduction (collectively, "Tax Items") shall be allocated among the Holders of Partnership Common Units in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof. B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is contributed to the Partnership with a Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the date of contribution shall be allocated among the Holders of Partnership Common Units for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Partnership shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the General Partner, including, without limitation, the "traditional method" as described in Regulations Section 1.704-3(b). In the event that the Gross Asset Value of any partnership asset is adjusted pursuant to subsection (b) of the definition of "Gross Asset Value" (provided in Article 1 hereof), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations. ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS Section 7.1 Management. A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Partners with or without cause, except with the Consent of the General Partner. In addition to the now or hereafter granted a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other B-24 219 provision of this Agreement, the General Partner, subject to the other provisions hereof including Section 7.3, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation: (1) the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the Previous General Partner (so long as the Previous General Partner qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Code Section 4981) and to make distribution its shareholders sufficient to permit the Previous General Partner to maintain REIT status or otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership's assets) and the incurring of any obligations that it deems necessary for the conduct of the activities of the Partnership; (2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; (3) the acquisition, sale, transfer, exchange or other disposition of any assets of the Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity; (4) the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that it sees fit, including, without limitation, the financing of the operations and activities of the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Partnership's Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to and equity investments in the Partnership's Subsidiaries; (5) the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property, including, without limitation, any Contributed Property, or other asset of the Partnership or any Subsidiary; (6) the negotiation, execution and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership's operations or the implementation of the General Partner's powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership's assets; (7) the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership, and the collection and receipt of revenues, rents and income of the Partnership; (8) the selection and dismissal of employees of the Partnership or the General Partner (including, without limitation, employees having titles or offices such as "president," "vice president," "secretary" and "treasurer"), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner and the determination of their compensation and other terms of employment or hiring; (9) the maintenance of such insurance for the benefit of the Partnership and the Partners as it deems necessary or appropriate; B-25 220 (10) the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, any Subsidiary and any other Person in which it has an equity investment from time to time); provided, however, that, as long as the Previous General Partner has determined to continue to qualify as a REIT, the General Partner may not engage in any such formation, acquisition or contribution that would cause the Previous General Partner to fail to qualify as a REIT or the General Partner to fail to qualify as a "qualified REIT subsidiary" within the meaning of Code Section 856(i)(2); (11) the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (12) the undertaking of any action in connection with the Partnership's direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons); (13) the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as it may adopt; provided that such methods are otherwise consistent with the requirements of this Agreement; (14) the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner's contribution of property or assets to the Partnership; (15) the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership; (16) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person; (17) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person; (18) the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement; (19) the issuance of additional Partnership Units, as appropriate and in the General Partner's sole and absolute discretion, in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article 4 hereof; and (20) an election to dissolve the Partnership pursuant to Section 13.1.C hereof. B. Each of the Limited Partners agrees that, except as provided in Section 7.3 hereof, the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement (except as provided in Section 7.3 hereof), the Act or any applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any B-26 221 agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity. C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Properties of the Partnership and (ii) liability insurance for the Indemnitees hereunder. D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time. E. In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken by it. The General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement so long as the action or inaction is taken in good faith. Section 7.2 Certificate of Limited Partnership. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction, in which the Partnership may elect to do business or own property. Section 7.3 Restrictions on General Partner's Authority. A. The General Partner may not take any action in contravention of this Agreement, including, without limitation: (1) take any action that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; (2) possess Partnership property, or assign any rights in specific Partnership property, for other than a Partnership purpose except as otherwise provided in this Agreement; (3) admit a Person as a Partner, except as otherwise provided in this Agreement; (4) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or (5) enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of prohibiting or restricting, the ability of (a) the General Partner, the Previous General Partner or the Partnership from satisfying its obligations under Section 8.6 hereof in full or (b) a Limited Partner from exercising its rights under Section 8.6 hereof to effect a Redemption in full, except, in either case, with the written consent of such Limited Partner affected the prohibition or restriction. B-27 222 B. The General Partner shall not, without the prior Consent of the Limited Partners, undertake, on behalf of the Partnership, any of the following actions or enter into any transaction that would have the effect of such transactions: (1) except as provided in Section 7.3.C hereof, amend, modify or terminate this Agreement other than to reflect the admission, substitution, termination or withdrawal of Partners pursuant to Article 11 or Article 12 hereof; (2) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Partnership; (3) institute any proceeding for bankruptcy on behalf of the Partnership; or (4) subject to the rights of Transfer provided in Sections 11.1.C and 11.2 hereof, approve or acquiesce to the Transfer of the Partnership Interest of the General Partner, or admit into the Partnership any additional or successor General Partners. C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution or withdrawal of Partners or the termination of the Partnership in accordance with this Agreement, and to amend Exhibits A and C in connection with such admission, substitution or withdrawal; (3) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; (4) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (5) (a) to reflect such changes as are reasonably necessary (i) for either the General Partner or the Special Limited Partner, as the case may be, to maintain its status as a "qualified REIT subsidiary" within the meaning of Code Section 856(i)(2) or (ii) for the Previous General Partner to maintain its status as a REIT or to satisfy the REIT Requirement; (b) to reflect the Transfer of all or any part of a Partnership Interest among the Previous General Partner, the General Partner, the Special Limited Partner or any other "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner; (6) to modify the manner in which Capital Accounts are computed (but only to the extent set forth in the definition of "Capital Account" or contemplated by the Code or the Regulations); and (7) the issuance of additional Partnership Interests in accordance with Section 4.2. The General Partner will provide notice to the Limited Partners when any action under this Section 7.3.C is taken. D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement shall not be amended, and no action may be taken by the General Partner, without the Consent of each Partner adversely affected, if such amendment or action would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter the rights of any Partner to receive the distributions to which such Partner is entitled, pursuant to Article 5 or Section 13.2.A(4) hereof, or alter the allocations specified in B-28 223 Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2 and 7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify any related definitions, or (v) amend this Section 7.3.D; provided, however, that the Consent of each Partner adversely affected shall not be required for any amendment or action that affects all Partners holding the same class or series of Partnership Units on a uniform or pro rata basis. Further, no amendment may alter the restrictions on the General Partner's authority set forth elsewhere in this Section 7.3 without the Consent specified therein. Any such amendment or action consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such consent by any other Partner. Section 7.4 Reimbursement of the General Partner. A. The General Partner shall not be compensated for its services as general partner of the Partnership except as provided in elsewhere in this Agreement (including the provisions of Articles 5 and 6 hereof regarding distributions, payments and allocations to which it may be entitled in its capacity as the General Partner). B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall be liable for, and shall reimburse the General Partner on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all sums expended in connection with the Partnership's business, including, without limitation, (i) expenses relating to the ownership of interests in and management and operation of, or for the benefit of, the Partnership, (ii) compensation of officers and employees, including, without limitation, payments under future compensation plans of the General Partner that may provide for stock units, or other phantom stock, pursuant to which employees of the General Partner will receive payments based upon dividends on or the value of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses of the General Partner being a public company, including costs of filings with the SEC, reports and other distributions to its shareholders; provided, however, that the amount of any reimbursement shall be reduced by any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it on behalf of the Partnership as permitted pursuant to Section 7.5 hereof. Such reimbursements shall be in addition to any reimbursement of the General Partner as a result of indemnification pursuant to Section 7.7 hereof. C. To the extent practicable, Partnership expenses shall be billed directly to and paid by the Partnership and, subject to Section 15.11 hereof, reimbursements to the General Partner or any of its Affiliates by the Partnership pursuant to this Section 7.4 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). Section 7.5 Outside Activities of the Previous General Partner and the General Partner. Neither the General Partner nor the Previous General Partner shall directly or indirectly enter into or conduct any business, other than in connection with (a) the ownership, acquisition and disposition of Partnership Interests as General Partner, (b) the management of the business of the Partnership, (c) the operation of the Previous General Partner as a reporting company with a class (or classes) of securities registered under the Exchange Act, (d) the Previous General Partner's operations as a REIT, (e) the offering, sale, syndication, private placement or public offering of stock, bonds, securities or other interests, (f) financing or refinancing of any type related to the Partnership or its assets or activities, (g) the General Partner's qualification as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) and (h) such activities as are incidental thereto. Nothing contained herein shall be deemed to prohibit the General Partner or the Previous General Partner from executing guarantees of Partnership debt for which it would otherwise be liable in its capacity as General Partner. Subject to Section 7.3.B hereof, the General Partner, the Previous General Partner, the Special Limited Partner and all "qualified REIT subsidiaries" (within the meaning of Code Section 856(i)(2)), taken as a group, shall not own any assets or take title to assets (other than temporarily in connection with an acquisition prior to contributing such assets to the Partnership) other than Partnership Interests as the General Partner or Special Limited Partner and other than such cash and cash equivalents, bank accounts or similar instruments or accounts as such group deems reasonably necessary, taking into account Section 7.1.D hereof and the requirements necessary for the Previous General Partner to qualify as a REIT and for the Previous General Partner, the General Partner and the Special Limited Partner to carry out B-29 224 their respective responsibilities contemplated under this Agreement and the Charter. Notwithstanding the foregoing, if the Previous General Partner or the General Partner acquires assets in its own name and owns Property other than through the Partnership, the Partners agree to negotiate in good faith to amend this Agreement, including, without limitation, the definition of "Adjustment Factor," to reflect such activities and the direct ownership of assets by the Previous General Partner or the General Partner. The General Partner and any Affiliates of the General Partner may acquire Limited Partner Interests and shall be entitled to exercise all rights of a Limited Partner relating to such Limited Partner Interests. Section 7.6 Contracts with Affiliates. A. The Partnership may lend or contribute funds or other assets to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. B. Except as provided in Section 7.5 hereof and subject to Section 3.1 hereof, the Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes to be advisable. C. Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable. D. The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt on behalf of the Partnership employee benefit plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership or any of the Partnership's Subsidiaries. E. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable. Section 7.7 Indemnification. A. To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership ("Actions") as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Partnership shall not indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the law or (ii) for any transaction for which such Indemnitee received an improper personal benefit in violation or breach of any provision of this Agreement. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.7.A that the Partnership indemnify each Indemnitee to the fullest extent permitted by law. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of B-30 225 probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7. B. To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7.A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified. D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. E. Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership or the General Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7, unless such liabilities arise as a result of (i) such Indemnitee's intentional misconduct or knowing violation of the law, or (ii) any transaction in which such Indemnitee received a personal benefit in violation or breach of any provision of this Agreement or applicable law. F. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership's liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. I. It is the intent of the Partners that any amounts paid by the Partnership to the General Partner pursuant to this Section 7.7 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). B-31 226 Section 7.8 Liability of the General Partner. A. Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner nor any of its directors or officers shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the General Partner or such director or officer acted in good faith. B. The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the General Partner's shareholders collectively and that the General Partner is under no obligation to give priority to the separate interests of the Limited Partners or the General Partner's shareholders (including, without limitation, the tax consequences to Limited Partners, Assignees or the General Partner's shareholders) in deciding whether cause the Partnership to take (or decline to take) any actions. C. Subject to its obligations and duties as General Partner set forth in Section 7.1.A hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the General Partner). The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's, and its officers' and directors', liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. E. Notwithstanding anything herein to the contrary, except for fraud, willful misconduct or gross negligence, or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partner(s), for the debts or liabilities of the Partnership or the Partnership's obligations hereunder, and the full recourse of the other Partner(s) shall be limited interest of that Partner in the Partnership. To the fullest extent permitted by law, no officer, director or shareholder of the General Partner shall be liable to the Partnership for money damages except for (i) active and deliberate dishonesty established by a non- appealable final judgment or (ii) actual receipt of an improper benefit or profit in money, property or services. Without limitation of the foregoing, and except for fraud, willful misconduct or gross negligence, or pursuant to any such express indemnity, no property or assets of any Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partner(s) and arising out of, or in connection with, this Agreement. This Agreement is executed by the officers of the General Partner solely as officers of the same and not in their own individual capacities. F. To the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, the General Partner shall not be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the General Partner otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such General Partner. Section 7.9 Other Matters Concerning the General Partner. A. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. B-32 227 B. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder. D. Notwithstanding any other provision of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the Previous General Partner to continue to qualify as a REIT, (ii) for the Previous General Partner otherwise to satisfy the REIT Requirements, (iii) to avoid the Previous General Partner incurring any taxes under Code Section 857 or Code Section 4981 or (iv) for the General Partner or the Special Limited Partner to continue to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. Section 7.10 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. Section 7.11 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. B-33 228 ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS Section 8.1 Limitation of Liability. The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act. Section 8.2 Management of Business. No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative, or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement. Section 8.3 Outside Activities of Limited Partners. Subject to any agreements entered into pursuant to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary (including, without limitation, any employment agreement), any Limited Partner and any Assignee, officer, director, employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner, to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary, to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person. Section 8.4 Return of Capital. Except pursuant to the rights of Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided in Article 6 hereof or otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions. Section 8.5 Rights of Limited Partners Relating to the Partnership. A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner's own expense: (1) to obtain a copy of (i) the most recent annual and quarterly reports filed with the SEC by the Previous General Partner or the General Partner pursuant to the Exchange Act and (ii) each report or other written communication sent to the shareholders of the Previous General Partner; (2) to obtain a copy of the Partnership's federal, state and local income tax returns for each Fiscal Year; (3) to obtain a current list of the name and last known business, residence or mailing address of each Partner; B-34 229 (4) to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and (5) to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and that each Partner has agreed to contribute in the future, and the date on which each became a Partner. B. The Partnership shall notify any Limited Partner that is a Qualifying Party, on request, of the then current Adjustment Factor or any change made to the Adjustment Factor. C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the General Partner or (ii) the Partnership or the General Partner is required by law or by agreements with unaffiliated third parties to keep confidential. Section 8.6 Redemption Rights of Qualifying Parties. A. After the first Twelve-Month Period, a Qualifying Party, but no other Limited Partner or Assignee, shall have the right (subject to the terms and conditions set forth herein) to require the Partnership to redeem all or a portion of the Redeemable Units held by such Tendering Party (such Redeemable Units being hereafter "Tendered Units") in exchange (a "Redemption") for REIT shares issuable on, or the Cash Amount payable on, the Specified Redemption Date, as determined by the Partnership in its sole discretion. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Qualifying Party when exercising the Redemption right (the "Tendering Party"). A Tendering Party shall have no right to receive distributions with respect to any Tendered Units (other than the Cash Amount) paid after delivery of the Notice of Redemption, whether or not the Partnership Record Date for such distribution precedes or coincides with such delivery of the Notice of Redemption. If the Partnership elects to redeem Tendered Units for cash, the Cash Amount shall be delivered as a certified check payable to the Tendering Party or, in the General Partner's sole and absolute discretion, in immediately available funds. B. If the Partnership elects to redeem Tendered Units for REIT Shares rather than cash, then the Partnership shall direct the Previous General Partner to issue and deliver such REIT Shares to the Tendering Party pursuant to the terms set forth in this Section 8.6.B, in which case, (i) the Previous General Partner, acting as a distinct legal entity, shall assume directly the obligation with respect thereto and shall satisfy the Tendering Party's exercise of its Redemption right, and (ii) such transaction shall be treated, for federal income tax purposes, as a transfer by the Tendering Party of such Tendered Units to the Previous General Partner in exchange for REIT shares. The percentage of the Tendered Units tendered for Redemption by the Tendering Party for which the Partnership elects to cause the Previous General Partner to issue REIT Shares (rather than cash) is referred to as the "Applicable Percentage." In making such election to cause the Previous General Partner to acquire Tendered Units, the Partnership shall act in a fair, equitable and reasonable manner that neither prefers one group or class of Qualifying Parties over another nor discriminates against a group or class of Qualifying Parties. If the Partnership elects to redeem any number of Tendered Units for REIT Shares, rather than cash, on the Specified Redemption Date, the Tendering Party shall sell such number of the Tendered Units to the Previous General Partner in exchange for a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable Percentage. The Tendering Party shall submit (i) such information, certification or affidavit as the Previous General Partner may reasonably require in connection with the application of the Ownership Limit and other restrictions and limitations of the Charter to any such acquisition and (ii) such written representations, investment letters, legal opinions or other instruments necessary, in the Previous General Partner's view, to effect compliance with the Securities Act. The product of the Applicable Percentage and the REIT Shares Amount, if applicable, shall be delivered by the Previous General Partner as duly authorized, validly issued, fully paid and accessible REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than the Ownership Limit and B-35 230 other restrictions provided in the Charter, the Bylaws of the Previous General Partner, the Securities Act and relevant state securities or "blue sky" laws. Neither any Tendering Party whose Tendered Units are acquired by the Previous General Partner pursuant to this Section 8.6.B, any Partner, any Assignee nor any other interested Person shall have any right to require or cause the Previous General Partner or the General Partner to register, qualify or list any REIT Shares owned or held by such Person, whether or not such REIT Shares are issued pursuant to this Section 8.6.B, with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the Previous General Partner and any such Person. Notwithstanding any delay in such delivery, the Tendering Party shall be deemed the owner of such REIT Shares and Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. REIT Shares issued upon an acquisition of the Tendered Units by the Previous General Partner pursuant to this Section 8.6.B may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the Previous General Partner in good faith determines to be necessary or advisable in order to ensure compliance with such laws. C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof, the Tendering Parties (i) where the Redemption would consist of less than all the Partnership Common Units held by Partners other than the General Partner and the Special Limited Partner, shall not be entitled to elect or effect a Redemption to the extent that the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) would be reduced, as a result of the Redemption, to less that percent (1%) and (ii) shall have no rights under this Agreement that would otherwise be prohibited under the Charter. To the extent that any attempted Redemption would be in violation of this Section 8.6.C, it shall be null and void ab initio, and the Tendering Party shall not acquire any rights or economic interests in REIT Shares otherwise issuable by the Previous General Partner under Section 8.6.B hereof. D. In the event that the Partnership declines to cause the Previous General Partner to acquire all of the Tendered Units from the Tendering Party in exchange for REIT Shares pursuant to Section 8.6.B hereof following receipt of a Notice of Redemption (a "Declination"): (1) The Previous General Partner or the General Partner shall give notice of such Declination to the Tendering Party on or before the close of business on the Cut-Off Date. (2) The Partnership may elect to raise funds for the payment of the Cash Amount either (a) by requiring that the General Partner contribute such funds from the proceeds of a registered public offering (a "Public Offering Funding") by the Previous General Partner of a number of REIT Shares ("Registrable Shares") equal to the REIT Shares Amount with respect to the Tendered Units or (b) from any other sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt) available to the Partnership. (3) Promptly upon the General Partner's receipt of the Notice of Redemption and the Previous General Partner or the General Partner giving notice of the Partnership's Declination, the General Partner shall give notice (a "Single Funding Notice") to all Qualifying Parties then holding a Partnership Interest (or an interest therein) and having Redemption rights pursuant to this Section 8.6 and require that all such Qualifying Parties elect whether or not to effect a Redemption of their Partnership Common Units to be funded through such Public Offering Funding. In the event that any such Qualifying Party elects to effect such a Redemption, it shall give notice thereof and of the number of Partnership Common Units to be made subject thereon in writing to the General Partner within ten (10) Business Days after receipt of the Single Funding Notice, and such Qualifying Party shall be treated as a Tendering Party for all purposes of this Section 8.6. In the event that a Qualifying Party does not so elect, it shall be deemed to have waived its right to effect a Redemption for the current Twelve-Month Period; provided, however, that the Previous General Partner shall not be required to acquire Partnership Common Units pursuant to this Section 8.6.D more than twice within a Twelve-Month Period. B-36 231 Any proceeds from a Public Offering Funding that are in excess of the Cash Amount shall be for the sole benefit of the Previous General Partner and/or the General Partner. The General Partner and/or the Special Limited Partner shall make a Capital Contribution of such amounts to the Partnership for an additional General Partner Interest and/or Limited Partner Interest. Any such contribution shall entitle the General Partner and the Special Limited Partner, as the case may be, to an equitable Percentage Interest adjustment. E. Notwithstanding the provisions of Section 8.6.B hereof, the Previous General Partner shall not, under any circumstances, elect to acquire Tendered Units in exchange for the REIT Shares Amount if such exchange would be prohibited under the Charter. F. Notwithstanding anything herein to the contrary (but subject to Section 8.6.C hereof), with respect to any Redemption pursuant to this Section 8.6: (1) All Partnership Common Units acquired by the Previous General Partner pursuant to Section 8.6.B hereof shall be contributed by the Previous General Partner to either or both of the General Partner and the Special Limited Partner in such proportions as the Previous General Partner, the General Partner and the Special Limited Partner shall determine. Any Partnership Common Units so contributed to the General Partner shall automatically, and without further action required, be converted into and deemed to be a General Partner Interest comprised of the same number of Partnership Common Units. Any Partnership Common Units so contributed to the Special Limited Partner shall remain outstanding. (2) Subject to the Ownership Limit, no Tendering Party may effect a Redemption for less than five hundred (500) Redeemable Units or, if such Tendering Party holds (as a Limited Partner or, economically, as an Assignee) less than five hundred (500) Redeemable Units, all of the Redeemable Units held by such Tendering Party. (3) Each Tendering Party (a) may effect a Redemption only once in each fiscal quarter of a Twelve-Month Period and (b) may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the Previous General Partner for a distribution to its shareholders of some or all of its portion of such Partnership distribution. (4) Notwithstanding anything herein to the contrary, with respect to any Redemption or acquisition of Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, in the event that the Previous General Partner or the General Partner gives notice to all Limited Partners (but excluding any Assignees) then owning Partnership Interests (a "Primary Offering Notice") that the Previous General Partner desires to effect a primary offering of its equity securities then, unless the Previous General Partner and the General Partner otherwise consent, commencement of the actions denoted in Section 8.6.E hereof as to a Public Offering Funding with respect to any Notice of Redemption thereafter received, whether or not the Tendering Party is a Limited Partner, may be delayed until the earlier of (a) the completion of the primary offering or (b) ninety (90) days following the giving of the Primary Offering Notice. (5) Without the Consent of the Previous General Partner, no Tendering Party may effect a Redemption within ninety (90) days following the closing of any prior Public Offering Funding. (6) The consummation of such Redemption shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (7) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provision of Section 11.5 hereof) all Redeemable Units subject to any Redemption, and be treated as a Limited Partner or an Assignee, as applicable, with respect to such Redeemable Units for all purposes of this Agreement, until such Redeemable Units are either paid for by the Partnership pursuant to Section 8.6.A hereof or transferred to the Previous General Partner (or directly to the General Partner or Special Limited Partner) and paid for, by the issuance of the REIT Shares, pursuant to Section 8.6.B hereof on the Specified Redemption Date. Until a Specified Redemption Date and an acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, the Tendering Party shall have B-37 232 no rights as a shareholder of the Previous General Partner with respect to the REIT Shares issuable in connection with such acquisition. For purposes of determining compliance with the restrictions set forth in this Section 8.6.F, all Partnership Common Units beneficially owned by a Related Party of a Tendering Party shall be considered to be owned or held by such Tendering Party. G. In connection with an exercise of Redemption rights pursuant to this Section 8.6, the Tendering Party shall submit the following to the General Partner, in addition to the Notice of Redemption: (1) A written affidavit, dated the same date as the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) representing that, after giving effect to the Redemption, neither the Tendering Party nor any Related Party will own REIT Shares in excess of the Ownership Limit; (2) A written representation that neither the Tendering Party nor any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption on the Specified Redemption Date; and (3) An undertaking to certify, at and as a condition to the closing of the Redemption on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and any Related Party remain unchanged from that disclosed in the affidavit required by Section 8.6.G(1) or (b) after giving effect to the Redemption, neither the Tendering Party nor any Related Party shall own REIT Shares in violation of the Ownership Limit. Section 8.7 Partnership Right to Call Limited Partner Interests. Notwithstanding any other provision of this Agreement, on and after the date on which the aggregate Percentage Interests of the Limited Partners (other than the Special Limited Partner) are less than one percent (1%), the Partnership shall have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding Limited Partner Interests (other than the Special Limited Partner's Limited Partner Interest) by treating any Limited Partner as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 8.6 hereof for the amount of Partnership Common Units to be specified by the General Partner, in its sole and absolute discretion, by notice to such Limited Partner that the Partnership has elected to exercise its rights under this Section 8.7. Such notice given by the General Partner to a Limited Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of Redemption delivered to the General Partner by such Limited Partner. For purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise a Qualifying Party) may, in the General Partner's sole and absolute discretion, be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Sections 8.6.C(1), 8.6.F(2), 8.6.F(3) and 8.6.F(5) hereof shall not apply, but the remainder of Section 8.6 hereof shall apply, mutatis mutandis. ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS Section 9.1 Records and Accounting. A. The General Partner shall keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnership's business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 8.5.A or Section 9. hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form for, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time. B-38 233 B. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership, the General Partner and the Previous General Partner may operate with integrated or consolidated accounting records, operations and principles. Section 9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the calendar year. Section 9.3 Reports. A. As soon as practicable, but in no event later than one hundred five (105) days after the close of each Fiscal Year, the General Partner shall cause to be mailed to each Limited Partner, of record as of the close of the Fiscal Year, an annual report containing financial statements of the Partnership, or of the Previous General Partner if such statements are prepared solely on a consolidated basis with the Previous General Partner, for such Fiscal Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner. B. As soon as practicable, but in no event later than one hundred five (105) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner, of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the Previous General Partner if such statements are prepared solely on a consolidated basis with the Previous General Partner, and such other information as may be required by applicable law or regulation or as the General Partner determines to be appropriate. At the request of any Limited Partner, the General Partner shall provide access to the books, records and workpapers upon which the reports required by this Section 9.3 are based, to the extent required by the Act. ARTICLE 10 TAX MATTERS Section 10.1 Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all returns with respect to Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable effort to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal and state income tax reporting purpose The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time. Section 10.2 Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including, but not limited to, the election under Code Section 754 and the election to use the "recurring item" method of accounting provided under Code Section 461(h) with respect to property taxes imposed on the Partnership's Properties; provided, however, that, if the "recurring item" method of accounting is elected with respect to such property taxes, the Partnership shall pay the applicable property taxes prior to the date provided in Code Section 461(h) for purposes of determining economic performance. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Sections 461(h) and 754) upon the General Partner's determination in its sole and absolute discretion that such revocation is in the best interests of the Partners. Section 10.3 Tax Matters Partner. A. The General Partner shall be the "tax matters partner" of the Partnership for federal income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership in addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist B-39 234 the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable. At the request of any Limited Partner, the General Partner agrees to consult with such Limited Partner with respect to the preparation and filing of any returns and with respect to any subsequent audit or litigation relating to such returns; provided, however, that the filing of such returns shall be in the sole and absolute discretion of the General Partner. B. The tax matters partner is authorized, but not required: (1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a "notice partner" (as defined in Code Section 6231) or a member of a "notice group" (as defined in Code Section 6223(b)(2)); (2) in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a "final adjustment") is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States the district in which the Partnership's principal place of business is located; (3) to intervene in any action brought by any other Partner for judicial review of a final adjustment; (4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; (5) to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and (6) to take any other action on behalf of the Partners in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such. Section 10.4 Withholding. Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partners pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the Available Funds of the Partnership that would, but for such payment, be distributed to the Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner's Partnership Interest to secure such B-40 235 Limited Partner's obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.4. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.4 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder. ARTICLE 11 TRANSFERS AND WITHDRAWALS Section 11.1 Transfer. A. No part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement. B. No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio. C. Notwithstanding the other provisions of this Article 11 (other than Section 11.6.D hereof), the Partnership Interests of the General Partner and the Special Limited Partner may be Transferred, in whole or in part, at any time or from time to time, to or among the Previous General Partner, the General Partner, the Special Limited Partner, and any other Person that is, at the time of such Transfer, a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the Previous General Partner. Any transferee of the entire General Partner Interest pursuant to this Section 11.1.C shall automatically become, without further action or Consent of any Limited Partners, the sole general partner of the Partnership, subject to all the rights, privileges, duties and obligations under this Agreement and the Act relating to a general partner. Any transferee of a Limited Partner Interest pursuant to this Section 11.1.C shall automatically become, without further action or Consent of any Limited Partners, a Substituted Limited Partner. Upon any Transfer permitted by this Section 11.1.C, the transferor Partner shall be relieved of all its obligations under this Agreement. The provisions of Section 11.2.B (other than the last sentence thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted by this Section 11.1.C. Section 11.2 Transfer of General Partner's Partnership Interest. A. The General Partner may not Transfer any of its General Partner Interest or withdraw from the Partnership except as provided in Sections 11.2.B and 11.2.C hereof. B. The General Partner shall not withdraw from the Partnership and shall not Transfer all or any portion of its interest in the Partnership (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise) without the Consent of the Limited Partners, which Consent may be given or withheld in the sole and absolute discretion of the Limited Partners. Upon any Transfer of such a Partnership Interest pursuant to the Consent of the Limited Partners and otherwise in accordance with the provisions of this Section 11.2.B, the transferee shall become a successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any B-41 236 Transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such Transferred Partnership Interest, and such Transfer shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners. In the event that the General Partner withdraws from the Partnership, in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the bankruptcy of the General Partner, a Majority in Interest of the Limited Partners may elect to continue the Partnership business by selecting a successor General Partner in accordance with the Act. C. The General Partner may merge with another entity if immediately after such merger substantially all of the assets of the surviving entity, other than the General Partner Interest held by the General Partner, are contributed to the Partnership as a Capital Contribution in exchange for Partnership Units. Section 11.3 Limited Partners' Rights to Transfer. A. General. Prior to the end of the first Twelve-Month Period, no Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the Consent of the General Partner, which Consent may be withheld in its sole and absolute discretion; provided, however, that any Limited Partner may, at any time, without the consent of the General Partner, (i) Transfer all or part of its Partnership Interest to any Designated Party, any Family Member, any Controlled Entity or any Affiliate, provided that the transferee is, in any such case, a Qualified Transferee, or (ii) pledge (a "Pledge") all or any portion of its Partnership Interest to a lending institution, that is not an Affiliate of such Limited Partner, as collateral or security for a bona fide loan or other extension of credit, and Transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension or credit (any Transfer or Pledge permitted by this proviso is hereinafter referred to as a "Permitted Transfer"). After such first Twelve-Month Period, each Limited Partner, and each transferee of Partnership Units or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all or any portion of its Partnership Interest to any Person, subject to the provisions of Section 11.6 hereof and to satisfaction of each of the following conditions: (1) General Partner Right of First Refusal. The transferring Partner shall give written notice of the proposed Transfer to the General Partner, which notice shall state (i) the identity of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Partnership Units. The General Partner shall have ten (10) Business Days upon which to give the Transferring Partner notice of its election to acquire the Partnership Units on the proposed terms. If it so elects, it shall purchase the Partnership Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that in the event that the proposed terms involve a purchase for cash, the General Partner may at its election deliver in lieu of all or any portion of such cash a note payable to the Transferring Partner at a date as soon as reasonably practicable, but in no event later than one hundred eighty (180) days after such purchase, and bearing interest at an annual rate equal to the total dividends declared with respect to one (1) REIT Share for the four (4) preceding fiscal quarters of the General Partner, divided by the Value as of the closing of such purchase; provided, further, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and any other applicable requirements of law. If it does not so elect, the Transferring Partner may Transfer such Partnership Units to a third party, on terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3. (2) Qualified Transferee. Any Transfer of a Partnership Interest shall be made only to a single Qualified Transferee; provided, however, that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; provided, further, that each Transfer meeting the minimum Transfer restriction of Section 11.3.A(3) hereof may be to a separate Qualified Transferee. (3) Minimum Transfer Restriction. Any Transferring Partner must Transfer not less than the lesser of (i) the greater of five hundred (500) Partnership Units or one-third ( 1/3) of the number of Partnership Units owned by such Partner as of the Effective Date or (ii) all of the remaining Partnership B-42 237 Units owned by such Transferring Partner; provided, however, that, for purposes of determining compliance with the foregoing restriction, all Partnership Units owned by Affiliates of Limited Partner shall be considered to be owned by such Limited Partner. (4) Transferee Agreement to Effect a Redemption. Any proposed transferee shall deliver to the General Partner a written agreement reasonably satisfactory to the General Partner to the effect that the transferee will, within six (6) months after consummation of a Partnership Common Units Transfer, tender its Partnership Common Units for Redemption in accordance with the terms of the Redemption rights provided in Section 8.6 hereof. (5) No Further Transfers. The transferee (other than a Designated Party) shall not be permitted to effect any further Transfer of the Partnership Units, other than to the General Partner. (6) Exception for Permitted Transfers. The conditions of Sections 11.3.A(1) through 11.3.A(5) hereof shall not apply in the case of a Permitted Transfer. It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is effected during or after the first Twelve-Month Period) that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its sole and absolute discretion. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any and all ownership limitations (including, without limitation, the Ownership Limit) contained in the Charter that may limit or restrict such transferee's ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof. B. Incapacity. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner's estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of Limited Partner, in and of itself, shall not dissolve or terminate the Partnership. C. Opinion of Counsel. In connection with any Transfer of a Limited Partner Interest, the General Partner shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units, the General Partner may prohibit any Transfer otherwise permitted under this Section 11.3 by a Limited Partner of Partnership Interests. D. Adverse Tax Consequences. No Transfer by a Limited Partner of its Partnership Interests (including any Redemption, any other acquisition of Partnership Units by the General Partner or any acquisition of Partnership Units by the Partnership) may be made to any person if (i) in the opinion of legal counsel for the Partnership, it would result in the Partnership being treated as an association taxable as a corporation, or (ii) such Transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Code Section 7704. B-43 238 Section 11.4 Substituted Limited Partners. A. No Limited Partner shall have the right to substitute a transferee (including any Designated Party or other transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A transferee (including, but not limited to, any Designated Party) of the interest of a Limited Partner may be admitted as a Substituted Limited Partner only with the Consent of the General Partner, which Consent may be given or withheld by the General Partner in its sole an absolute discretion. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, (ii) a counterpart signature page to this Agreement executed by such Assignee and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee's admission as a Substituted Limited Partner. B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. C. Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name, address and number of Partnership Units of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address and number of Partnership Units of the predecessor of such Substituted Limited Partner. Section 11.5 Assignees. If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Limited Partner, as described in Section 11.4 hereof, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Units assigned to such transferee and the rights to Transfer the Partnership Units provided in this Article 11, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement (other than as expressly provided in Section 8.6 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Partnership Units on any matter presented to the Limited Partners for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units. Section 11.6 General Provisions. A. No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer of all of such Limited Partner's Partnership Units in accordance with this Article 11, with respect to which the transferee becomes a Substituted Limited Partner, or pursuant to a redemption (or acquisition by the Previous General Partner) of all of its Partnership Units pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit Designation. B. Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its rights to effect a redemption of all of its Partnership Units pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit Designation or (iii) to the Previous General Partner or the General Partner, whether or not pursuant to Section 8.6.B hereof, shall cease to be a Limited Partner. B-44 239 C. If any Partnership Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Partnership, or acquired by the Previous General Partner pursuant to Section 8.6 hereof, on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Fiscal Year shall be allocated to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer or assignment other than a Redemption, to the transferee Partner (including, without limitation, the General Partner and the Special Limited Partner as transferees of the Previous General Partner in the case of an acquisition of Partnership Common Units pursuant to Section 8.6 hereof), by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which a Transfer occurs shall be allocated to the transferee Partner and none of such items for the calendar month in which a Transfer or a Redemption occurs shall be allocated to the transferor Partner or the Tendering Party, as the case may be, if such Transfer occurs on or before the fifteenth (15th) day of the month, otherwise such items shall be allocated to the transferor. All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer other than a Redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner. D. In addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of a Partnership Interest by any Partner (including any Redemption, any acquisition of Partnership Units by the Previous General Partner or any other acquisition of Partnership Units by the Partnership) be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) in the event that such Transfer would cause either (a) the Previous General Partner to cease to comply with the REIT Requirements or (b) the General Partner or the Special Limited Partner to cease to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)); (v) if such Transfer would, in the opinion of counsel to the Partnership or the General Partner, cause a termination of the Partnership for federal or state income tax purposes (except as a result of the Redemption (or acquisition by the Previous General Partner) of all Partnership Common Units held by all Limited Partners other than the Special Limited Partner); (vi) if such Transfer would, in the opinion of legal counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the Redemption (or acquisition by the Previous General Partner) of all Partnership Common Units held by all Limited Partners other than the Special Limited Partner); (vii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section 3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii) if such Transfer would, in the opinion of legal counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (ix) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (x) if such Transfer causes the Partnership to become a "publicly traded partnership," as such term is defined in Code Section 469(k)(2) or Code 7704(b); or (xi) if such Transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. B-45 240 ARTICLE 12 ADMISSION OF PARTNERS Section 12.1 Admission of Successor General Partner. A successor to all of the General Partner's General Partner Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to such Transfer. Any such successor shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner executing and delivering to the Partnership an acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. Section 12.2 Admission of Additional Limited Partners. A. After the admission to the Partnership of an Original Limited Partner on the date hereof, a Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to this Agreement executed by such Person and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person's admission as an Additional Limited Partner. B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. C. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Code Section 7 using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner, in accordance with the principles described in Section 11.6.C hereof. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner. Section 12.3 Amendment of Agreement and Certificate of Limited Partnership. For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power attorney granted pursuant to Section 2.4 hereof. Section 12.4 Admission of Initial Limited Partners. The Persons listed on Exhibit A as limited partners of the Partnership shall be admitted to the Partnership as Limited Partners upon their execution and delivery of this Agreement. B-46 241 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION Section 13.1 Dissolution. The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of an of the following (each a "Liquidating Event"): A. the expiration of its term as provided in Section 2.5 hereof; B. an event of withdrawal, as defined in the Act (including, without limitation, bankruptcy), of the sole General Partner unless, within ninety (90) days after the withdrawal, a "majority in interest" (as such phrase is used in Section 17-801(3) of the Act) of the remaining Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a successor General Partner: C. an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion, with or without the Consent of the Limited Partners; D. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act; E. the occurrence of a Terminating Capital Transaction; F. the Redemption (or acquisition by the Previous General Partner, the General Partner and/or the Special Limited Partner) of all Partnership Common Units other than Partnership Common Units held by the General Partner or the Special Limited Partner; or G. the Redemption (or acquisition by the General Partner) of all Partnership Common Units other than Partnership Common Units held by the General Partner. Section 13.2 Winding Up. A. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and Partners. After the occurrence of a Liquidating Event, no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership's business and affairs. The General Partner (or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Limited Partners (the General Partner or such other Person being referred to herein as the "Liquidator")) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership's liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the Previous General Partner) shall be applied and distributed in the following order: (1) First, to the satisfaction of all of the Partnership's debts and liabilities to creditors other than the Partners and their Assignees (whether by payment or the making of reasonable provision for payment thereof); (2) Second, to the satisfaction of all of the Partnership's debts and liabilities to the General Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof; (3) Third, to the satisfaction of all of the Partnership's debts and liabilities to the other Partners and any Assignees (whether by payment or the making of reasonable provision for payment thereof); and B-47 242 (4) Subject to the terms of any Partnership Unit Designation, the balance, if any, to the General Partner, the Limited Partners and any Assignees in accordance with and in proportion to their positive Capital Account balances, after giving effect to all contributions, distributions and allocations for all periods. The General Partner shall not receive any additional compensation for any services performed pursuant to this Article 13. B. Notwithstanding the provisions of Section 13.2.A hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. C. In the event that the Partnership is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article 13 to the Partners and Assignees that have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive Capital Account balances. If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever. In the sole and absolute discretion of the General Partner or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Article 13 may be withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and order of priority set forth in Section 13.2.A hereof as soon as practicable. Section 13.3 Deemed Distribution and Recontribution. Notwithstanding any other provision of this Article 13, in the event that the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's Property shall not be liquidated, the Partnership's liabilities shall not be paid or discharged and the Partnership's affairs shall not be wound up. Instead, for federal income tax purposes the Partnership shall be deemed to have distributed the Property in kind to the Partners and the Assignees, who shall be deemed to have assumed and taken such Property subject to all Partnership liabilities, all in accordance with their respective Capital Accounts. Immediately thereafter, the Partners and the Assignees shall be deemed to have recontributed the Partnership Property in kind to the Partnership, which shall be deemed to have assumed and taken such Property subject to all such liabilities; provided, however, that nothing in this Section 13.3 shall be deemed to have constituted any Assignee as a Substituted Limited Partner without compliance with the provisions of Section 11.4 hereof. Section 13.4 Rights of Limited Partners. Except as otherwise provided in this Agreement, (a) each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Limited Partner shall have the right or power to demand or receive property other than cash from the Partnership and (c) no Limited Partner shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions or allocations. B-48 243 Section 13.5 Notice of Dissolution. In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners and, in the General Partner's sole and absolute discretion or as required by the Act, to all other parties with whom the Partners regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner). Section 13.6 Cancellation of Certificate of Limited Partnership. Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Partnership as a foreign limited partnership or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Partnership shall be taken. Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation. ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS Section 14.1 Procedures for Actions and Consents of Partners. The actions requiring consent or approval of Limited Partners pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article 14. Section 14.2 Amendments. Amendments to this Agreement may be proposed by the General Partner or by a Majority in Interest of the Limited Partners. Following such proposal, the General Partner shall submit any proposed amendment to the Limited Partners. The General Partner shall seek the written consent of the Limited Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that the General Partner may deem appropriate. For purposes of obtaining a written consent, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a consent that is consistent with the General Partner's recommendation with respect to the proposal; provided, however, that an action shall become effective at such time as requisite consents are received even if prior to such specified time. Section 14.3 Meetings of the Partners. A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by a Majority in Interest of the Limited Partners. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.3.B hereof. B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement for the action in question). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of a majority of the Percentage Interests of Partners (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. B-49 244 C. Each Limited Partner may authorize any Person or Persons to act for it by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership's receipt of written notice of such revocation from the Limited Partner executing such proxy. D. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the General Partner's shareholders and may be held at the same time as, and as part of, the meetings of the General Partner's shareholders. ARTICLE 15 GENERAL PROVISIONS Section 15.1 Addresses and Notice. Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including by telecopy, facsimile, or commercial courier service) to the Partner or Assignee at the address set forth in Exhibit A or such other address of which the Partner shall notify the General Partner in writing. Section 15.2 Titles and Captions. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" or "Sections" are to Articles and Sections of this Agreement. Section 15.3 Pronouns and Plurals. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 15.4 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. Section 15.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 15.6 Waiver. A. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. B. The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time and at any time; provided, however, that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners, (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation or (v) violating the B-50 245 Securities Act, the Exchange Act or any state "blue sky" or other securities laws; provided, further, that any waiver relating to compliance with the Ownership Limit or other restrictions in the Charter shall be made and shall be effective only as provided in the Charter. Section 15.7 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. Section 15.8 Applicable Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence. Section 15.9 Entire Agreement. This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership. Section 15.10 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. Section 15.11 Limitation to Preserve REIT Status. Notwithstanding anything else in this Agreement, to the extent that the amount paid, credited, distributed or reimbursed by the Partnership to any REIT Partner or its officers, directors, employees or agents, whether as a reimbursement, fee, expense or indemnity (a "REIT Payment"), would constitute gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its discretion from among items of potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced, for or with respect to such REIT Partner shall not exceed the lesser of: (i) an amount equal to the excess, if any, of (a) four and nine-tenths percent (4.9%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the REIT Partner from sources other than those described in subsections (A) through (H) of Code Section 856(c)(2) (but not including the amount of any REIT Payments); or (ii) an amount equal to the excess, if any, of (a) twenty-four percent (24%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments); provided, however, that REIT Payments in excess of the amounts set forth in clauses (i) and (ii) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts shall not adversely affect the REIT Partner's ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a consequence of the limitations set forth in this Section 15.11, such REIT Payments shall carry over and shall be treated as arising in the following Fiscal Year. The purpose of the limitations contained in this Section 15.11 is to prevent any REIT Partner from failing to qualify as a REIT under the Code by reason of such REIT Partner's share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.11 shall be interpreted and applied to effectuate such purpose. B-51 246 Section 15.12 No Partition. No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms of this Agreement, and that the rights of the Partners and their successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement. Section 15.13 No Third-Party Rights Created Hereby. The provisions of this Agreement are solely for the purpose of defining the interests of the Partners, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners. IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above. PREVIOUS GENERAL PARTNER: APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President GENERAL PARTNER: AIMCO-GP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President SPECIAL LIMITED PARTNER: AIMCO-LP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President B-52 247 LIMITED PARTNERS: By: AIMCO-GP, INC., as attorney-in-fact By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: President B-53 248 LETTER OF TRANSMITTAL TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN [ ] LIMITED PARTNERSHIP PURSUANT TO AN OFFER DATED [ ] [ ], 1999 BY AIMCO PROPERTIES, L.P. --------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ] [ ], 1998, UNLESS EXTENDED. --------------------- The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: Toll Free (818) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 - -------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF UNITS TENDERED - -------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE INDICATE CHANGES OR NUMBER OF UNITS TENDERED CORRECTIONS TO THE NAME, (ATTACH ADDITIONAL LIST, IF NECESSARY) ADDRESS AND TAX IDENTIFICATION NUMBER PRINTED ABOVE.) - -------------------------------------------------------------------------------------------------------------------- 2. NUMBER 3. NUMBER OF UNITS OF UNITS 4. NUMBER 5. TOTAL 1. TOTAL TENDERED FOR TENDERED FOR OF UNITS NUMBER NUMBER OF PREFERRED COMMON TENDERED FOR OF UNITS UNITS OWNED OP UNITS OP UNITS CASH TENDERED (#) (#) (#) (#) (#) ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
249 To participate in the offer and receive either cash, Partnership Common Units ("Common OP Units") of AIMCO Properties, L.P. (the "Purchaser") or Class Two Partnership Preferred Units ("Preferred OP Units") of the Purchaser, you must send a duly completed and executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal so that such documents are received by River Oaks Partnership Services, Inc., the Information Agent, on or prior to [ ] [ ], 1999 (the "Expiration Date"). THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY. FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be issued in the name of someone other than the undersigned. [ ] Issue consideration to: Name: - ---------------------------------------- (Please type or Print) Address: - -------------------------------------- - ------------------------------------------------ - ------------------------------------------------ - ------------------------------------------------ (Include Zip Code) - ------------------------------------------------ (Tax Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. [ ] Mail consideration to: Name: - ---------------------------------------- (Please type or Print) Address: - -------------------------------------- - ------------------------------------------------ - ------------------------------------------------ - ------------------------------------------------ (Include Zip Code) NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 250 Ladies and Gentlemen: The undersigned (the "Limited Partner") hereby acknowledges that he or she has received and reviewed (i) the Apartment Investment and Management Company and AIMCO Properties, L.P. Prospectus, dated [ ] [ ], 1999, as supplemented or amended from time to time, (ii) the Purchaser's Prospectus Supplement, dated [ ] [ ], which describes the exchange offer, as supplemented or amended from time to time, [and] (iii) this Letter of Transmittal, including the Instructions hereto, as it may be supplemented or amended from time to time (the "Letter of Transmittal")[, and (iv) the Partnerships' Form 10-K[SB] for the year ended December 31, 1997 and Form 10-Q[SB] for the quarter ended September 30, 1998] (all constituting the "Offer"). Upon the terms and subject to the conditions set forth in the Offer, the undersigned hereby tenders to the Purchaser the units of limited partnership interest ("Units") in [ ], a [ ] limited partnership (the "Partnership"), set forth in the box above entitled "Description of Units Tendered" under the column entitled "Total Number of Units Tendered." For each Unit that you tender, you may choose to receive as consideration per Unit (the "Offer Price") any combination of Class Two Partnership Preferred Units, ("Preferred OP Units"), Partnership Common Units ("Common OP Units") or $ in cash, reduced in each case for the amount of distributions, if any, made by the Partnership from the date the Offer commences (the "Offer Date") until the Expiration Date. The number of Units you choose to tender for each type of consideration will be set forth by you in the box above entitled "Description of Units Tendered" under the columns entitled "Number of Units Tendered for Preferred OP Units," "Number of Units Tendered for Common OP Units," and "Number of Units Tendered for Cash." All holders of Units who do not specify which type of consideration they wish to receive will be deemed to have elected to receive Preferred OP Units. Subject to and effective upon acceptance for payment of any of the Units tendered hereby in accordance with the terms of the Offer, the undersigned hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon the order of, the Purchaser all right, title and interest in and to such Units tendered hereby that are accepted for payment pursuant to the Offer, including, without limitation, (i) all of the undersigned's interest in the capital of the Partnership, and the undersigned's interest in all profits, losses and distributions of any kind to which the undersigned shall at any time be entitled in respect of the Units; (ii) all other payments, if any, due or to become due to the undersigned in respect of the Units, under or arising out of the Partnership Agreement, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of the undersigned's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Partnership Agreement or the undersigned's ownership of the Units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of the Partnership; and (iv) all present and future claims, if any, of the undersigned against the Partnership, the other partners of the Partnership, or the general partner and its affiliates, including the Purchaser, under or arising out of the Partnership Agreement, the undersigned's status as a limited partner, or the terms or conditions of the Offer, for monies loaned or advanced, for services rendered, for the management of the Partnership or otherwise. The undersigned hereby irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to vote or act in such manner as any such attorney and proxy or substitute shall, in its sole discretion, deem proper with respect to such Units, to do all such acts and things necessary or expedient to deliver such Units and transfer ownership of such Units on the partnership books maintained by the general partner of the Partnership, together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, to sign any and all documents necessary to authorize the transfer of the Units to the Purchaser including, without limitation, the "Transferor's (Seller's) Application for Transfer" created by the National Association of Securities Dealers, Inc., if required, and upon receipt by the Information Agent (as the undersigned's agent) of the offer price, to become a substitute limited partner, to receive any and all distributions made by the Partnership from and after the expiration date of the offer (regardless of the record date for any such distribution), and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units all in accordance with the terms of the Offer. This appointment is effective upon the purchase of the Units by the Purchaser as provided in the Offer. Upon the purchase of Units pursuant to the Offer, all prior proxies and consents given by the undersigned with respect to such Units will be revoked and no subsequent proxies or consents may be given (and if given will not be deemed effective). In addition to and without limiting the generality of the foregoing, the undersigned hereby irrevocably (i) requests and authorizes (subject to and effective upon acceptance for payment of any Unit tendered hereby) the Partnership and general partner to take any and all actions as may be required to effect the 251 transfer of the undersigned's Units to the Purchaser (or its designee) and to admit the Purchaser as a substitute limited partner in the Partnership under the terms of the Partnership Agreement; (ii) empowers the Purchaser and its agent to execute and deliver to the general partner a change of address form instructing the general partner to send any and all future distributions to the address specified in the form, and to endorse any check payable to or upon the order of such Limited Partner representing a distribution to which the Purchaser is entitled to the terms of the offer, in each case in the name and on behalf of the tendering Limited Partner; and (iii) agrees not to exercise any rights pertaining to the Units without the prior consent of the Purchaser. NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. Subject to and effective upon acceptance for payment of any Unit tendered hereby, the undersigned hereby requests that the Purchaser be admitted to each Partnership as a substitute limited partner under the terms of its Partnership Agreement. Upon request, the undersigned will execute and deliver additional documents deemed by the Information Agent or the Purchaser to be necessary or desirable to complete the assignment, transfer and purchase of Units tendered hereby and will hold any distributions received from the Partnership after the Expiration Date in trust for the benefit of the Purchaser and, if necessary, will promptly forward to the Purchaser any such distributions immediately upon receipt. The Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more of its affiliates, the right to purchase Units tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering limited partners to receive payment for Units validly tendered and accepted for payment pursuant to the Offer. By executing this Letter of Transmittal, the undersigned represents that either (i) the undersigned is not a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. The undersigned understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer, the Purchaser may not be required to accept for payment any of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment may be destroyed by the Purchaser (or its agent). EXCEPT AS STATED IN THE OFFER, THIS TENDER IS IRREVOCABLE, PROVIDED THAT UNITS TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE AND, UNLESS ALREADY ACCEPTED FOR PAYMENT AS PROVIDED IN THE OFFER, MAY ALSO BE WITHDRAWN AT ANY TIME AFTER [ ] [ ], 1999. THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP MAKES NO RECOMMENDATION TO THE UNDERSIGNED AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING UNITS IN THE OFFER AND THE UNDERSIGNED HAS MADE HIS OR HER OWN DECISION TO TENDER UNITS. The undersigned hereby represents and warrants for the benefit of the Partnership and the Purchaser that the undersigned owns the Units tendered hereby and has full power and authority and has taken all necessary action to validly tender, sell, assign, transfer, convey and deliver the Units tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claims and that the transfer and assignment contemplated herein are in compliance with all applicable laws and regulations. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligations of the undersigned shall be binding upon the heirs, personal representatives, trustees in bankruptcy, legal representatives, and successors and assigns of the undersigned. The undersigned, if he is accepting the Offer for OP Units, hereby acknowledges that he has reviewed the Third Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") attached as Appendix B to the Prospectus, and hereby accepts admission to the Purchaser as an Additional Limited Partner and agrees to be bound by all of the provisions of the Partnership Agreement, which is incorporated herein by reference, including, without limitation, the power of attorney set forth in Section 2.4 of the Partnership Agreement. 252 SIGNATURE BOX (SEE INSTRUCTION 2) Please sign exactly as your name is printed on the front of this Letter of Transmittal. For joint owners, each joint owner must sign. (See Instruction 2). TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF A CORPORATION OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 2. The signatory hereto hereby tenders the Units indicated in this Letter of Transmittal to the Purchaser pursuant to the terms of the Offers, and certifies under penalties of perjury that the statements in Box A, Box B and, if applicable, Box C are true. X - -------------------------------------------------------------------------------- (SIGNATURE OF OWNER) X - -------------------------------------------------------------------------------- (SIGNATURE OF JOINT OWNER) Name and Capacity (if other than individuals): ---------------------------------- Title: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (CITY) (STATE) (ZIP) Area Code and Telephone No. (Day): ---------------------------------------------- (Evening): ---------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED) (SEE INSTRUCTION 2) Name and Address of Eligible Institution: --------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Authorized Signature: X ---------------------------------------------------------- Name: --------------------------------------------------------------------------- Title: - --------------------------------------- Date: , 1999 ------------------------- 253 TAX CERTIFICATIONS (SEE INSTRUCTION 4) By signing the Letter of Transmittal in the Signature Box, the Limited Partner certifies as true under penalty of perjury, the representations in Boxes A, B and C below. Please refer to the attached Instructions for completing this Letter of Transmittal and Boxes A, B and C below. BOX A SUBSTITUTE FORM W-9 (SEE INSTRUCTION 4 -- BOX A) The Limited Partner hereby certifies the following to the Purchaser under penalties of perjury: (i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the front of this Letter of Transmittal is the correct TIN of the Limited Partner, unless the Units are held in an Individual Retirement Account (IRA); or if this box [ ] is checked, the Limited Partner has applied for a TIN. If the Limited Partner has applied for a TIN, a TIN has not been issued to the Limited Partner, and either (a) the Limited Partner has mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) the Limited Partner intends to mail or deliver an application in the near future (it being understood that if the Limited Partner does not provide a TIN to the Purchaser, 31% of all reportable payments made to the Limited Partner will be withheld); and (ii) Unless this box [ ] is checked, the Limited Partner is not subject to backup withholding either because the Limited Partner: (a) is exempt from backup withholding; (b) has not been notified by the IRS that the Limited Partner is subject to backup withholding as a result of a failure to report all interest or dividends; or (c) has been notified by the IRS that such Limited Partner is no longer subject to backup withholding. Note: Place an "X" in the box in (ii) above, only if you are unable to certify that the Limited Partner is not subject to backup withholding. 254 BOX B FIRPTA AFFIDAVIT (SEE INSTRUCTION 4 -- BOX B) Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership if 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the partnership interest is a foreign person. To inform the Purchaser that no withholding is required with respect to the Limited Partner's Units in the Partnership, the person signing this Letter of Transmittal hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the Limited Partner, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) The Limited Partner's U.S. social security number (for individuals) or employer identification number (for non-individuals) is correct as furnished in the blank provided for that purpose on the front of the Letter of Transmittal; (iii) The Limited Partner's home address (for individuals), or office address (for non-individuals), is correctly printed (or corrected) on the front of this Letter of Transmittal. The person signing this Letter of Transmittal understands that this certification may be disclosed to the IRS by the Purchaser and that any false statements contained herein could be punished by fine, imprisonment, or both. (SEE BOX C ON REVERSE SIDE) 255 BOX C SUBSTITUTE FORM W-8 (SEE INSTRUCTION 4 -- BOX C) By checking this box [ ], the person signing this Letter of Transmittal hereby certifies under penalties of perjury that the Limited Partner is an "exempt foreign person" for purposes of the Backup Withholding rules under the U.S. Federal income tax laws, because the Limited Partner has the following characteristics: (i) Is a nonresident alien individual or a foreign corporation, partnership, estate or trust; (ii) If an individual, has not been and plans not to be present in the U.S. for a total of 183 days or more during the calendar year; and (iii) Neither engages, nor plans to engage, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange. 256 INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL 1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter of Transmittal (or facsimile thereof) and any other required documents must be received by the Information Agent at one of its addresses (or its facsimile number) set forth herein before 5:00 p.m., New York City Time, on [ ] [ ], 1999, unless extended. To ensure receipt of the Letter of Transmittal and any other required documents, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal and any other required documents are to be delivered by United States mail, that you use certified or registered mail, return receipt requested. WHERE NO DEFINITIVE INDICATION IS MARKED IN THE BOX ENTITLED "DESCRIPTION OF UNITS TENDERED" UNDER THE COLUMNS ENTITLED "NUMBER OF UNITS TENDERED FOR PREFERRED OP UNITS," "NUMBER OF UNITS TENDERED FOR COMMON OP UNITS," AND "NUMBER OF UNITS TENDERED FOR CASH," LETTERS OF TRANSMITTAL THAT HAVE BEEN DULY EXECUTED SHALL BE DEEMED TO HAVE TENDERED ALL UNITS FOR PREFERRED OP UNITS PURSUANT TO THE OFFER. WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT ALL PAGES OF THE LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A, B AND C). THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 2.SIGNATURE REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS -- After carefully reading and completing the Letter of Transmittal, to tender Units, Limited Partners must sign at the "X" in the Signature Box of the Letter of Transmittal. The signature(s) must correspond exactly with the names printed (or corrected) on the front of the Letter of Transmittal. If the Letter of Transmittal is signed by the Limited Partner (or beneficial owner in the case of an IRA), no signature guarantee on the Letter of Transmittal is required. If any tendered Units are registered in the names of two or more joint owners, all such owners must sign this Letter of Transmittal. IRA'S/ELIGIBLE INSTITUTIONS -- For Units held in an IRA account, the beneficial owner should sign in the Signature Box and no signature guarantee is required. Similarly, if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required. TRUSTEES, CORPORATIONS, PARTNERSHIPS AND FIDUCIARIES -- Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in the Signature Box and have their signatures guaranteed by an Eligible Institution by completing the signature guarantee set forth in the Signature Box of the Letter of Transmittal. If the Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or others acting in a fiduciary or representative capacity, such persons should, in addition to having their signatures guaranteed, indicate their title in the Signature Box and must submit proper evidence satisfactory to the Purchaser of their authority to so act (see Instruction 3 below). 3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be completed on the Letter of Transmittal, additional documentation may be required by the Purchaser under certain circumstances including, but not limited to, those listed below. Questions on documentation should be directed to the Information Agent at its telephone number set forth herein. DECEASED OWNER (JOINT TENANT) -- Copy of death certificate. DECEASED OWNER (OTHERS) -- Copy of death certificate (see also Executor/Administrator/Guardian below). 257 EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for executor or administrator; and (a) a copy of applicable provisions of the will (title page, executor(s)' powers, asset distribution); or (b) estate distribution documents. ATTORNEY-IN-FACT -- Current power of attorney. CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of authority to act. Partnership should furnish copy of the partnership agreement. TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration, a copy of the cover page of the trust or pension plan, along with a copy of the section(s) setting forth names and powers of trustee(s) and any amendments to such sections or appointment of successor trustee(s). 4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued in the name of a person other than the person signing the Signature Box of the Letter of Transmittal or if consideration is to be sent to someone other than such signer or to an address other than that set forth on the Letter of Transmittal in the box entitled "Description of Units Tendered," the appropriate boxes on the Letter of Transmittal should be completed. 5. TAX CERTIFICATIONS. The Limited Partner(s) tendering Units to the Purchaser pursuant to the Offer must furnish the Purchaser with the Limited Partner's taxpayer identification number ("TIN") and certify as true, under penalties of perjury, the representations in Box A, Box B and, if applicable, Box C. By signing the Signature Box, the Limited Partner(s) certifies that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" and the representations made in Box A, Box B and, if applicable, Box C, are correct. See attached Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for guidance in determining the proper TIN to give the Purchaser. U.S. PERSONS. A limited partner that is a U.S. citizen or a resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "U.S. Persons"), as those terms are defined in the Code, should follow the instructions below with respect to certifying Box A and Box B. BOX A -- SUBSTITUTE FORM W-9. Part (i), Taxpayer Identification Number -- Tendering limited partners must certify to the Purchaser that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" is correct. If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service (the "IRS"), in addition to the limited partner being subject to backup withholding. Part (ii), Backup Withholding -- In order to avoid 31% Federal income tax backup withholding, the tendering limited partner must certify, under penalties of perjury, that such limited partner is not subject to backup withholding. Certain limited partners (including, among others, all corporations and certain exempt non-profit organizations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. When determining the TIN to be furnished, please refer to the following as a guide: Individual accounts -- should reflect owner's TIN. Joint accounts -- should reflect the TIN of the owner whose name appears first. Trust accounts -- should reflect the TIN assigned to the trust. IRA custodial accounts -- should reflect the TIN of the custodian (not necessary to provide). Custodial accounts for the benefit of minors -- should reflect the TIN of the minor. Corporations, partnership or other business entities -- should reflect the TIN assigned to that entity. By signing the Signature Box, the limited partner(s) certifies that the TIN as printed (or corrected) on the front of the Letter of Transmittal is correct. BOX B -- FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each limited partner transferring interests in a partnership with real estate assets meeting certain criteria certify under penalty of perjury the representations made in Box B, or be subject to withholding of tax equal to 10% of the purchase price 258 for interests purchased. Tax withheld under Section 1445 of the Code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. PART (I) SHOULD BE CHECKED ONLY IF THE TENDERING LIMITED PARTNER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN. BOX C -- FOREIGN PERSONS -- In order for a tendering Limited Partner who is a Foreign Person (i.e., not a U.S. Person, as defined above) to qualify as exempt from 31% backup withholding, such foreign Limited Partner must certify, under penalties of perjury, the statement in Box C of this Letter of Transmittal, attesting to that Foreign Person's status by checking the box preceding such statement. UNLESS THE BOX IS CHECKED, SUCH LIMITED PARTNER WILL BE SUBJECT TO 31% WITHHOLDING OF TAX. 6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of a Letter of Transmittal and other required documents will be determined by the Purchaser and such determination will be final and binding. The Purchaser's interpretation of the terms and conditions of the Offer (including these Instructions for this Letter of Transmittal) will be final and binding. The Purchaser will have the right to waive any irregularities or conditions as to the manner of tendering. Any irregularities in connection with tenders, unless waived, must be cured within such time as the Purchaser shall determine. This Letter of Transmittal will not be valid until any irregularities have been cured or waived. Neither the Purchaser nor the Information Agent are under any duty to give notification of defects in a Letter of Transmittal and will incur no liability for failure to give such notification. 8. ASSIGNEE STATUS. Assignees must provide documentation to the Information Agent which demonstrates, to the satisfaction of the Purchaser, such person's status as an assignee. 9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the registered holder or any person other than the person signing the Letter of Transmittal) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. 10. MINIMUM TENDERS. A limited partner may tender any or all of his, her or its Units; provided, however, that because of restrictions in the Partnership's Limited Partnership Agreement, a partial tender of Units must be for a minimum of [five] Units (other than limited partners who hold Units in an Individual Retirement Account or Keogh Plan). Tenders of fractional Units will be permitted only by a limited partner who is tendering all Units owned by that limited partner.] 11. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 259 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------------------------- ---------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE TAXPAYER IDENTIFICATION NUMBER OF -- - --------------------------------------------------------- FOR THIS TYPE OF ACCOUNT: GIVE THE TAXPAYER IDENTIFICATION NUMBER OF -- - --------------------------------------------------------- 1. An individual account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, either person 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person(3) 7. a The usual revocable The grantor trustee(1) savings trust account (grantor is also trustee) b So-called trust account The actual owner(1) that is not a legal or valid trust under state law 8. Sole proprietorship account The owner(4) 9. A valid trust, estate or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- --------------------------------------------------------- --------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's or incompetent person's name and furnish such person's social security number or employer identification number. (4) Show your individual name. You may also enter your business name. You may use your social security number or employer identification number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 260 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a) of the Code. - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to an appropriate nominee. - Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852 of the Code). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451 of the Code. - Payments made by certain foreign organizations. - Payments of mortgage interest to you. - Payments made to an appropriate nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(A), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 261 The Information Agent for the offer is: River Oaks Partnership Services, Inc. By Mail: P.O. Box 2065 S. Hackensack, N.J. 07606-2065 By Overnight Courier: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Hand: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Telephone: Toll Free (818) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 262 [LETTERHEAD OF AIMCO PROPERTIES, L.P.] March , 1999 Dear Limited Partner: We are offering to acquire your units of limited partnership interest in . Our offer presents you with the following four options, which you are free to accept or reject in any combination you like: 1. You may tender each of your units in exchange for of our 8.0% Class Two Partnership Preferred Units. Generally, this exchange may be made without recognizing any taxable gain on your units. After one year, you may redeem your Partnership Preferred Units for cash or, at our option, Class A Common Stock of Apartment Investment and Management Company, ("AIMCO"). After two years, you may redeem your Partnership Preferred Units for cash or, at our option, Class I Preferred Stock or Class A Common Stock of AIMCO. AIMCO is a real estate investment trust. We are the partnership through which AIMCO conducts substantially all of its operations. The Class A Common Stock is listed, and the Class I Preferred Stock is expected to be listed, on the New York Stock Exchange. 2. You may tender each of your units in exchange for of our Partnership Common Units. Generally, this exchange may also be made without recognizing any taxable gain on your units. After one year, you may redeem your Common Units for cash or, at our option, shares of Class A Common Stock of AIMCO. 3. You may tender each of your units in exchange for $ in cash, in which case you may recognize a gain or loss for federal income tax purposes. 4. You may retain any or all of your units. If you choose to retain any or all of your units, your rights as a holder of units will remain unchanged. You will continue to participate in gains and losses of your partnership, and you will receive distributions, if any, payable in respect of your units. We are offering to acquire no more than % of all outstanding units in your partnership. Our offer is not subject to any minimum number of units being tendered. You will not be required to pay any commissions or fees in connection with any disposition of your units pursuant to our offer. Our offer price will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. There are advantages and disadvantages to you of accepting or declining our offer. The terms of the offer are more fully described in the enclosed materials. These documents describe the material risks and opportunities associated with the offer, including certain tax considerations. Please review these documents carefully. The general partner of your partnership, which is an affiliate of ours, has substantial conflicts of interest with respect to the offer. Accordingly, the general partner of your partnership makes no recommendation to you as to whether you should tender or refrain from tendering your units in the offer. We have retained Robert A. Stanger & Co. to render an opinion as to the fairness of the offer consideration from a financial point of view. A copy of such opinion is enclosed as Appendix A to the enclosed Prospectus Supplement. If you desire to tender any of your units in response to our offer, you should complete and sign the enclosed letter of transmittal in accordance with the enclosed instructions and mail or deliver the signed letter of transmittal and any other required documents to River Oaks Partnership Services, Inc., which is acting as the Information Agent in connection with our offer, at the address set forth on the back cover of the enclosed Prospectus Supplement. The offer will expire at 5:00 p.m. New York City time on 1999, unless extended. If you have questions or require further information, please call the Information Agent, toll free, at (888) 349-2005. Very truly yours, AIMCO PROPERTIES, L.P. 263 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Baywood Apartments, Ltd. in exchange for your choice of: 1,732.75 of our 8.0% Class Two Partnership Preferred Units; 1,119.50 of our Partnership Common Units; or $43,313 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $43,313 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 264 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Baywood Partners, Ltd. ............................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-46 Borrowing Policies........................... S-47 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58
i 265
PAGE ----- Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 266 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Angeles Properties, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF UNITS. We estimate your property to be worth $6,043,000, less approximately $354,355 of deferred maintenance and investment. It is possible, that the sale of the property could result in you receiving more per unit than in our offer. S-1 267 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 268 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $3,465.50 per year on the number of Preferred OP Units, or distributions of $2,798.75 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 269 partnership's units. During 1998, your partnership paid cash distributions of $4,640.63 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 270 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,955,517 of balloon payments due on its mortgage debt in October 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 271 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2003 and require balloon payments of $3,955,517. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 272 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $4,640.63 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,466 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $4,640.63 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,798.75 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the S-7 273 Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 274 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 634,000 Capitalization rate......................................... 10.50% ---------- Gross valuation of partnership properties................... $6,043,000 Plus: Cash and cash equivalents............................. 222,672 Plus: Other partnership assets, net of security deposits.... 252,211 Less: Mortgage debt, including accrued interest............. (4,546,079) Less: Accounts payable and accrued expenses................. (20,195) Less: Other liabilities..................................... (58,695) ---------- Partnership valuation before taxes and certain costs........ 1,892,914 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (354,355) Less: Closing costs......................................... (151,075) ---------- Estimates net valuation of your partnership................. 1,387,484 Percentage of estimated net valuation allocated to holders of units.................................................. 99.89% ---------- Estimated net valuation of units............................ 1,386,001 Total number of units............................. 32.0 ---------- Estimated valuation per unit................................ 43,313 ========== Cash consideration per unit................................. $ 43,313 ==========
- --------------- (1) See "Valuation of Units" for a determination of the estimated gross valuation for the property and a more detailed explanation of the calculation of the offer price. In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $43,313 by the $25 liquidation preference of each Preferred OP Unit to get 1,732.75 Preferred OP Units per unit. S-9 275 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $43,313 by a price of $38.69 to get 1,119.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 43,313 Partnership Preferred Units................................. $ 43,313 Partnership Common Units.................................... $ 43,313 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 43,313 Estimated going concern value............................. $ 35,701 Alternative going concern value(1)........................ $ 38,501 Net book value (deficit).................................. $(61,711)
- --------------- (1) Assumes sale of property when a balloon payment is due instead of refinancing the mortgage. S-10 276 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Baywood Apartments, Ltd. is an Alabama limited partnership which was formed on January 1, 1979 for the purpose of owning and operating an apartment property located in Gretna, Louisiana, known as "Baywood Apartments." Baywood Apartments consists of 226 units and was built in 1974. Your partnership has no employees. As of December 31, 1998, there were 32 units of limited partnership interest issued and outstanding, which were held of record by 35 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,984,000 of limited partnership units in 1979. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $17,010.50 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in December, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $4,326,434, payable to FNMA, which bears interest at the rate of 7.83%. The mortgage debt is due in October, 2003. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 277 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,732.75 of our Class Two Partnership Preferred Units; - 1,119.50 of our Partnership Common Units; or - $43,313 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 32 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,732.75 Preferred OP Units, 1,119.50 Common OP Units, or $43,313 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 278 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 279 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $43,313 in cash, 1,732.75 Preferred OP Units or 1,119.50 Common OP Units. Both your units and the S-14 280 OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $43,313. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 5% of the Net Cash Flow (as defined in your partnership's agreement of limited partnership) from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $64,690 in 1996, $65,846 in 1997 and $65,374 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure of the manager of your partnership property. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $346,504 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 281 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 282
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 283 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 284
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 285 SUMMARY FINANCIAL INFORMATION OF BAYWOOD APARTMENTS, LTD. The summary financial information of Baywood Apartments, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Baywood Partners, Ltd. for the years ended December 31, 1997 and 1996, 1995 and 1994 is based on historical information, for which 1997 has been audited. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." BAYWOOD APARTMENTS, LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues................... $989,491 $996,931 $1,328,833 $1,325,546 $1,297,874 $1,237,530 $1,200,446 Net Income/(Loss)................ 20,870 63,563 32,377 40,048 109,250 (26,291) 14,750 Net Income (Loss) per limited partnership unit............... 646 1,966 1,002 1,239 3,380 (813) 456 Distributions per limited partnership unit............... 5,041 3,338 3,000 1,558 7,812 -- -- Distributions per limited partnership unit (which represent a return of capital).......................
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 288,500 $ 418,976 $ 419,804 $ 476,395 $ 452,632 $ 604,724 $ 442,664 Real Estate, Net of Accumulated Depreciation... 1,488,553 1,547,195 1,554,033 1,624,314 1,651,705 1,610,346 1,616,291 Total Assets................. 2,137,833 2,355,131 2,304,336 2,440,110 2,515,628 2,766,341 2,738,392 Notes Payable................ 4,429,284 4,475,971 4,469,935 4,518,594 4,563,624 4,605,295 4,644,184 General Partners' Capital/ (Deficit).................... (24,042) (12,252) (22,622) (21,976) (21,873) (20,440) (20,177) Limited Partners' Capital/ (Deficit).................... (2,380,204) (2,202,908) (2,239,567) (2,175,620) (2,165,419) (2,023,589) (1,997,561) Partners' Capital/(Deficit).... (2,404,245) (2,225,160) (2,262,189) (2,197,596) (2,187,292) (2,044,029) (2,017,738) Total Distributions............ 162,927 107,892 96,970 50,352 252,313 -- -- Book value per limited partnership unit............. (75,133) (69,536) (70,693) (66,875) (68,353) (63,876) (63,054) Net increase (decrease) in cash and cash equivalents......... (131,304) (57,419) (56,591) 23,763 (152,092) 162,060 442,664 Net cash provided by operating activities................... 182,384 186,291 Ratio of earnings to fixed charges...................... 1.07/1 1.30/1 1.08/1 1.10/1 1.28/1 0.93/1 1.04/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO BAYWOOD OPERATING APARTMENTS, PARTNERSHIP LTD. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,798.75 $4,688 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $ 3,466 $4,688
S-20 286 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 287 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth 6,043,000, less approximately 354,355 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 288 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 289 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 290 is equivalent to distributions of $3,466 per year on the number of Preferred OP Units, or distributions of $2,798.75 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $4,688 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 291 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time.The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,955,517 of balloon payments due on its mortgage debt in October, 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 292 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest, consisting of a 0.00% limited partnership interest and a 1.00% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 293 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 294 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal balance of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2003 and require balloon payments totaling $3,955,517. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2003 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-29 295 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require an affirmative vote by holders of a majority of the outstanding limited partnership units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 296 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $4,640.63 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,465.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $4,640.63 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,798.75 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 297 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 298 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $634,470 10.50% $6,043,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $1,304,865, less total expenses of $602,595 and recurring replacement costs of $67,800. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,387,484. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99.89% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 634,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 6,043,000 Plus: Cash and cash equivalents............................. 222,672 Plus: Other partnership assets, net of security deposits.... 252,211 Less: Mortgage debt, including accrued interest............. (4,546,079) Less: Accounts payable and accrued expenses................. (20,195) Less: Other liabilities..................................... (58,695) ----------- Partnership valuation before taxes and certain costs........ 1,892,914 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (354,355) Less: Closing costs......................................... (151,075) ----------- Estimated net valuation of your partnership................. 1,387,484 Percentage of estimated net valuation allocated to holders of units.................................................. 99.89% ----------- Estimated net valuation of units............................ $ 1,386,001 Total number of units............................. 32.0 ----------- Estimated valuation per unit................................ $ 43,313 =========== Cash consideration per unit................................. $ 43,313 ===========
S-33 299 - In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $43,313 by the $25 liquidation preference of each Preferred OP Unit to get 1,732.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $43,313 by a price of $38.69 to get 1,119.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $1,386,001 or .24% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $80,328 for the nine months ended September 30, 1997 to $20,870 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." S-34 300 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $43,313, based on a total estimated value of your partnership's property of $6,043,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,465.50 per year on the number of Preferred OP Units, or distributions of $2,798.75 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $4,640.63. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO S-35 301 Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the S-36 302 manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 43,313 Partnership preferred units................................. 43,313(1) Partnership common units.................................... 43,313(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 43,313 Estimated going concern value............................. $ 35,701 Net book value (deficit).................................. $(61,711) Alternative going concern value........................... $ 38,501(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when a balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, S-37 303 such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $35,701 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in October 2003. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $38,501 is based on selling the property when the balloon payment is due. For the reason set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book (deficit) per unit is only ($61,711) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-38 304 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $34,199 per unit, going concern value of $32,617 per unit and liquidation value of $29,707 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(9,114), $(10,696) and $(13,606). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99.89% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-39 305 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
BAYWOOD APARTMENTS ---------- Total Revenues.............................................. $1,430,058 Operating Expenses.......................................... (638,157) Replacement Reserves -- Net................................. (261,155) Debt Service................................................ (414,617) Capital Expenditures........................................ (26,700) ---------- Net Cash Flow..................................... $ 89,429 ==========
S-40 306 The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-41 307 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $354,355. Stanger observed that your partnership liquidation value of $1,387,484 was allocated 99.89% to the limited partnership divided by the total units outstanding of 32 to provide the liquidation value per unit of $43,313. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $634,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 32 to achieve management's estimate of going concern value of $35,701 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $43,313 per unit is equal to management's estimate of liquidation value, and reflects a 21.3% premium to management's estimate of going concern value. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors S-42 308 redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (approximately 13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $34,199, $32,617 and $29,707 representing premiums (discounts) to the offer price of (21%), (25%) and (31%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the S-43 309 partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed S-44 310 transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Baywood Apartments, Ltd., is an Alabama limited partnership which completed a private offering in 1979. Insignia acquired the general partner of your partnership in November, 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 35 limited partners of your partnership and a total of 32 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 1, 1979 for the purpose of owning an apartment property located in Gretna, Louisiana, known as "Baywood Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1971 and consists of 226 apartment units. There are 104 one-bedroom apartments, 76 two-bedroom apartments and 46 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 91.20% in 1998, 92.62% in 1997 and 96.02% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $354,355 and are intended to be paid for out of cash flow or borrowings. Renovation items include gutters and downspouts, heating, ventilation and air conditioning systems, plumbing, siding/trim/facia/soffits, sidewalks, landscaping and irrigation, drainage, and pool. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $463 $462 $453 $413 $417
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $48,261 of $453,790 of assessed valuation with a current yearly tax rate of 10.64%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 10.85% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. S-45 311 INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 91% and $466, respectively, at December 31, 1998, compared to 91% and $463, respectively, at December 31, 1997. In particular, the general partner noted that it expects to spend approximately $354,355 for capital improvements at the property in 1999 to repair and update the property's siding and trim, landscaping, irrigation, drainage, plumbing and pool. Although there can be no assurance as to future performance, however, these expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." S-46 312 BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $4,326,434, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October, 2003. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,984,000 of limited partnership units in 1979 for $62,000 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December , 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Your partnership's agreement of limited partnership does not limit the liability of the general partner to the partnership or the limited partners for any act performed in its capacity as the general partner. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, your partnership will indemnify and save harmless the general partner of your partnership, its officers, directors, employees, affiliates, designees and nominees from any loss or damage, including legal fees and expenses and amounts paid in settlement, incurred by any of them on behalf of your partnership or in furtherance of your partnership's interest, provided that the general partner or other person sued will not be entitled to indemnification for losses sustained by reason of its negligence, gross negligence, willful misconduct or breach of fiduciary obligations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. S-47 313 Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partner of your partnership or any other indemnified person. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $62,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1994.................................. $ 0 $ 0 $0 $ 0 1995.................................. 7,891 2,525 0 62,497 1996.................................. 1,574 504 0 12,462 1997.................................. 3,030 970 0 24,000 1998.................................. 4,688 1,500 0 37,125 ------- ------ -- -------- Total................................. $17,183 $5,499 $0 $136,084 ======= ====== == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest in your partnership as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 314 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $ 25,620 1995........................................................ $ 41,259 1996........................................................ $ 51,614 1997........................................................ $ 33,198 1998........................................................ $ 28,071
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ---------- 1995........................................................ $ 64,085 1996........................................................ $ 64,690 1997........................................................ $ 65,846 1998........................................................ $ 65,374
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 315 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP BAYWOOD APARTMENTS, LTD.
BAYWOOD APARTMENTS, LTD. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- SELECTED FINANCIAL INFORMATION Cash and Cash Equivalents..... $ 288,500 $ 418,976 $ 419,804 $ 476,395 $ 452,632 $ 604,724 $ 442,664 Land & Building............... 5,031,555 4,854,199 4,910,869 4,750,428 4,565,005 4,336,146 4,192,102 Accumulated Depreciation...... (3,543,002) (3,307,004) (3,356,836) (3,126,094) (2,913,300) (2,725,800) (2,575,811) Other Assets.................. 360,780 388,960 330,499 339,381 411,291 551,271 679,437 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 2,137,833 $ 2,355,131 $ 2,304,336 $ 2,440,110 $ 2,515,628 $ 2,766,341 $ 2,738,392 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 4,429,284 $ 4,475,971 $ 4,469,935 $ 4,518,594 $ 4,563,624 $ 4,605,295 $ 4,644,184 Other Liabilities............. 112,795 104,320 96,590 119,112 139,296 205,075 111,946 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 4,542,079 $ 4,580,291 $ 4,566,525 $ 4,637,706 $ 4,702,920 $ 4,810,370 $ 4,756,130 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit.............. $(2,404,246) $(2,225,160) $(2,262,189) $(2,197,596) $(2,187,292) $(2,044,029) $(2,017,738) =========== =========== =========== =========== =========== =========== ===========
BAYWOOD APARTMENTS, LTD. ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................ $ 942,511 $ 944,228 $ 1,256,240 $ 1,253,668 $ 1,227,468 $ 1,121,158 $ 1,130,064 Other Income.................. 46,980 52,703 72,593 71,878 70,406 116,372 70,382 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue......... $ 989,491 $ 996,931 $ 1,328,833 $ 1,325,546 $ 1,297,874 $ 1,237,530 $ 1,200,446 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............ $ 428,044 $ 419,825 $ 593,179 $ 590,698 $ 519,148 $ 627,459 $ 464,102 General & Administrative...... 44,714 20,806 36,996 50,012 42,841 47,220 136,090 Depreciation.................. 175,590 170,334 230,742 212,794 187,499 160,566 148,817 Interest Expense.............. 282,597 285,105 386,668 389,778 394,004 383,204 387,540 Property Taxes................ 37,676 37,298 48,871 42,216 45,132 45,372 49,147 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses........ $ 968,621 $ 933,368 $ 1,296,456 $ 1,285,498 $ 1,188,624 $ 1,263,821 $ 1,185,696 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (loss) before extraordinary items......... $ 20,870 $ 63,563 $ 32,377 $ 40,048 $ 109,250 $ (26,291) $ 14,750 Extraordinary Items........... -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............. $ 20,870 $ 63,563 $ 32,377 $ 40,048 $ 109,250 $ (26,291) $ 14,750 =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit............ $ 646 $ 1,966 $ 1,002 $ 1,239 $ 3,380 $ (813) $ 456 =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............ $ 5,041 $ 3,338 $ 3,000 $ 1,558 $ 7,812 $ -- $ -- =========== =========== =========== =========== =========== =========== ===========
S-50 316 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30,1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized net income of $20,870 for the nine months ended September 30, 1998, compared to $63,563 for the nine months ended September 30, 1997. The decrease in net income of $42,693, or 67.20% is due to a decrease in rental revenues and an increase in operating and interest expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $989,491 for the nine months ended September 30, 1998, compared to $996,931 for the nine months ended September 30, 1997, a slight decrease of $7,440 or .75%. Rental rates have remained relatively flat from year to year. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $428,044 for the nine months ended September 30, 1998, compared to $419,825 for the nine months ended September 30, 1997, an increase of $8,219 or 1.96%. Management expenses totaled $48,709 for the nine months ended September 30, 1998, compared to $49,638 for the nine months ended September 30, 1997, a decrease of $929 or 1.87%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $44,714 for the nine months ended September 30, 1998 compared to $20,806 for the nine months ended September 30, 1997, an increase of $23,908 or 114.91%. The increase is primarily due to an increase in the partnership asset management fee. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $282,597 for the nine months ended September 30, 1998, compared to $285,105 for the nine months ended September 30, 1997, a decrease of $2,508, or .9%. The increase in the interest expense is due to . Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $32,377 for the year ended December 31, 1997, compared to $40,048 for the year ended December 31, 1996, a decrease in net income of $7,671, or 19.15%. REVENUES Rental and other property revenues from the partnership's property totaled $1,328,833 for the year ended December 31, 1997, compared to $1,325,546 for the year December 31, 1996, an increase of $3,287, or .2%. S-51 317 The increase is due to an increase in market rent of approximately 3% offset partially by the decrease in the occupancy rate of 1%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $593,179 for the year ended December 31, 1997, compared to $590,698 for the year ended December 31, 1996, an increase of $2,481 or 0.42%. Management expenses totaled $65,846 for the year ended December 31, 1997, compared to $64,690 for the year ended December 31, 1996, an increase of $1,156, or 1.79%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $36,996 for the year ended December 31, 1997 compared to $50,012 for the year ended December 31, 1996, a decrease of $13,016 or 26.03%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $386,668 for the year ended December 31, 1997, compared to $389,778 for the year ended December 31, 1996, a decrease of $3,110, or 0.80%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. DEPRECIATION EXPENSE Depreciation expense increased over the prior year approximately $18,000, or 8% due to an increase in the amount of fixed assets at 12/31/97 as compared to 12/31/96. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $40,048 for the year ended December 31, 1996, compared to $109,250 for the year ended December 31, 1995. The decrease in net income of $69,202 or 63.34% was primarily the result of an increase in depreciation and operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,325,546 for the year ended December 31, 1996, compared to $1,297,874 for the year ended December 31, 1995, an increase of $27,672, or 2.13%. The increase in revenues is due to an increase in rental rates of 2%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $590,698 for the year ended December 31, 1996, compared to $519,148 for the year ended December 31, 1995. The increase of $71,550 or 13.78%, is primarily due to expenses incurred for paving repairs, new floor coverings and appliances at the property. Management expenses totaled $64,690 for the year ended December 31, 1996, compared to $64,085 for the year ended December 31, 1995, an increase of $605, or 0.94%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $50,012 for the year ended December 31, 1996 compared to $42,841 for the year ended December 31, 1995, an increase of $7,171 or 16.74%. S-52 318 INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $389,778 for the year ended December 31, 1996, compared to $394,040 for the year ended December 31, 1995, a decrease of $4,226, or 1.07%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. DEPRECIATION EXPENSE Depreciation expense increased from $187,499 in 1995 to $212,794 in 1996. The increase in the expense is due to the purchases of additional $317,000 fixed assets during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $288,500 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $55,410, was $4,429,284. The mortgages require monthly payments of approximately $34,551 until October 2003. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.8%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 319 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 32 units of your partnership (up to 8 units) for consideration per unit of (i) 1,732.75 Preferred OP Units, (ii) 1,119.50 Common OP Units, or (iii) $43,313 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 320 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 321 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 322 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 323 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 324 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 325 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 326 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 327 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 328 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 329 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 330 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 331 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 332 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 333 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 334 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 335 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 336 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Alabama law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash Flow (as defined in your partner- Operating Partnership's agreement of limited ship's agreement of limited partnership). partnership (the "AIMCO Operating The termination date of your partnership is Partnership Agreement") or as provided by December 31, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed for the The purpose of the AIMCO Operating sole purpose of being the sole limited Partnership is to conduct any business that partner of Baywood Apartments, Ltd., an may be lawfully conducted by a limited Alabama limited partnership, which holds partnership organized pursuant to the your partnership's property. Subject to Delaware Revised Uniform Limited Part- restrictions contained in your partnership's nership Act (as amended from time to time, agreement of limited partnership, your or any successor to such statute) (the partnership may perform any acts to "Delaware Limited Partnership Act"), accomplish the foregoing including, without provided that such business is to be limitation, borrowing funds and creating conducted in a manner that permits AIMCO to liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 337 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit up to 32 additional limited partnership purpose from time to time to the partners by selling not more than 1,984 limited partners and to other persons, and units for cash and notes to selected persons to admit such other persons as additional who fulfill the requirements set forth in limited partners, on terms and conditions your partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners and no sole discretion. The net capital action or consent is required in connection contribution need not be equal for all OP with the admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership and The AIMCO Operating Partnership may lend or its affiliates may make loans to your contribute funds or other assets to its partnership but is precluded from receiving subsidiaries or other persons in which it interest in excess of what has an equity investment,
S-72 338 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP would be charged by unrelated banks for and such persons may borrow funds from the comparable loans. Your partnership is AIMCO Operating Partnership, on terms and prohibited from making loans to the general conditions established in the sole and partner, the limited partners or any their absolute discretion of the general partner. affiliates and cannot sell or lease its To the extent consistent with the business interest in your partnership's property to purpose of the AIMCO Operating Partnership the general partner, the limited partners or and the permitted activities of the general any of their affiliates. partner, the AIMCO Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and execute contains no restrictions on borrowings, and promissory notes secured by a mortgage on the general partner has full power and your partnership's property, provided that authority to borrow money on behalf of the your partnership may borrow only such AIMCO Operating Partnership. The AIMCO amounts for which it can reasonably expect Operating Partnership has credit agreements to meets debt service requirements from that restrict, among other things, its anticipated Net Cash Flow and may not issue ability to incur indebtedness. senior securities except as set forth in your partnership's agreement of limited partnership.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles limited partners to written demand with a statement of the review the records of your partnership at purpose of such demand and at such OP reasonable times upon reasonable notice at Unitholder's own expense, to obtain a the location where such records are kept by current list of the name and last known your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and complete discretion in the management and affairs of the AIMCO Operating Partnership control of the business of your partnership, are vested in AIMCO-GP, Inc., which is the except to the extent specifically limited by general partner. No OP Unitholder has any your partnership's agreement of limited right to participate in or exercise control partnership or by law. No limited partner or management power over the business and may take part in the management of the affairs of the AIMCO Operating Partner- business of
S-73 339 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP your partnership, transact any business for ship. The OP Unitholders have the right to your partnership or have the power to sign vote on certain matters described under for or bind your partnership to any "Comparison of Your Units and AIMCO OP agreement or document. Units -- Voting Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Your partnership's agreement of limited Notwithstanding anything to the contrary set partnership does not limit the liability of forth in the AIMCO Operating Partnership the general partner to your partnership or Agreement, the general partner is not liable the limited partners for any act performed to the AIMCO Operating Partnership for in its capacity as general partner. How- losses sustained, liabilities incurred or ever, your partnership will indemnify and benefits not derived as a result of errors save harmless the general partner of your in judgment or mistakes of fact or law of partnership, its officers, directors, any act or omission if the general partner employees, affiliates, designees and acted in good faith. The AIMCO Operating nominees from any loss or damage, including Partnership Agreement provides for legal fees and expenses and amounts paid in indemnification of AIMCO, or any director or settlement, incurred by any of them on officer of AIMCO (in its capacity as the behalf of your partnership or in furtherance previous general partner of the AIMCO of your partnership's interest, provided Operating Partnership), the general partner, that the general partner or other person any officer or director of general partner sued will not be entitled to indemnification or the AIMCO Operating Partnership and such for losses sustained by reason of its other persons as the general partner may negligence, gross negligence, willful designate from and against all losses, misconduct or breach of fiduciary claims, damages, liabilities, joint or obligations. several, expenses (including legal fees), fines, settlements and other
S-74 340 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the general partner of partner has exclusive management power over your partnership may be removed and an the business and affairs of the AIMCO additional or substitute general partner may Operating Partnership. The general partner be elected upon the written consent or may not be removed as general partner of the affirmative vote of the limited partners AIMCO Operating Partnership by the OP owning a majority of the limited partnership Unitholders with or without cause. Under the units outstanding. Such actions may be taken AIMCO Operating Partnership Agreement, the without the consent of the existing general general partner may, in its sole discretion, partner or any general partner who has been prevent a transferee of an OP Unit from removed. With the consent of a majority in becoming a substituted limited partner interest of the limited partners, the pursuant to the AIMCO Operating Partnership general partner may add or substitute any Agreement. The general partner may exercise other person as general partner. Upon ninety this right of approval to deter, delay or days notice, a general partner may resign hamper attempts by persons to acquire a provided that your partnership has a controlling interest in the AIMCO Operating remaining corporation general partner who is Partnership. Additionally, the AIMCO qualified to act as such or the remaining Operating Partnership Agreement contains individual general partners have an restrictions on the ability of OP aggregate net worth that is substantial. A Unitholders to transfer their OP Units. See limited partner may not transfer his "Description of OP Units -- Transfers and interests in your partnership without the Withdrawals" in the accompanying Prospectus. consent of the general partner, provided that a limited partner may make a gratuitous transfer to certain specified individuals.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the general partner of your partnership or Agreement, whereby the general partner may, by limited partners owning at least 10% of without the consent of the OP Unitholders, the then outstanding limited partnership amend the AIMCO Operating Partnership interests. Approval by a majority of the Agreement, amendments to the AIMCO Operating then outstanding limited partnership Partnership Agreement require the consent of interests is necessary to effect an the holders of a majority of the amendment to your partnership's
S-75 341 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership. In outstanding Common OP Units, addition, the general partner may excluding AIMCO and certain amend your partnership's agreement other limited exclusions (a "Majority in of limited partnership from time Interest"). Amendments to the AIMCO to time to add representations, duties or Operating Partnership Agreement may be obligation of the general partner or to proposed by the general partner or by surrender rights granted to the general holders of a Majority in Interest. Following partner, cure any ambiguity or make such proposal, the general partner will modifications required by state or Federal submit any proposed amendment to the OP securities law. Notwithstanding the Unitholders. The general partner will seek foregoing, certain provisions of your the written consent of the OP Unitholders on partnership's agreement of limited the proposed amendment or will call a partnership are not subject to amendment in meeting to vote thereon. See "Description of any case. OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions The general partner does not receive in respect of its partnership interest compensation for its services as and reimbursement for all general partner of the AIMCO fees and expenses as set forth in your Operating Partnership. However, the general partnership's agreement of limited partner is entitled to payments, allocations partnership, the general partner receives an and distributions in its capacity as general annual management fee equal to 5% of the Net partner of the AIMCO Operating Partnership. Cash Flow (as defined in your partnership's In addition, the AIMCO Operating Partnership agreement of limited partnership. Moreover, is responsible for all expenses incurred the general partner or certain affiliates relating to the AIMCO Operating Partner- may be entitled to compensation for ship's ownership of its assets and the additional services rendered. operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has personally liable for any of the debts of personal liability for the AIMCO Operating your partnership or any of the losses Partnership's debts and obligations, and thereof beyond the amount contributed by the liability of the OP Unitholders for the limited partner to the capital of your AIMCO Operating Partnership's debts and partnership, its notes for capital obligations is generally limited to the contributions to your partnership and the amount of their investment in the AIMCO limited partner's share of undistributed Operating Partnership. However, the profits of your partnership. limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a
S-76 342 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Your partnership's agreement of limited Unless otherwise provided for in the partnership provides that the general relevant partnership agreement, Delaware law partner must manage and control the affairs generally requires a general partner of a of your partnership to the best of its Delaware limited partnership to adhere to ability and use its best efforts to carry fiduciary duty standards under which it owes out the purposes of your partnership. The its limited partners the highest duties of general partner must diligently and good faith, fairness and loyalty and which faithfully devote such of its time to the generally prohibit such general partner from business of your partnership at it deems taking any action or engaging in any necessary to conduct it for the greatest transaction as to which it has a conflict of advantage of your partnership. The general interest. The AIMCO Operating Partnership partner has a fiduciary responsibility for Agreement expressly authorizes the general the safekeeping and use of all funds and partner to enter into, on behalf of the assets of your partnership, whether or not AIMCO Operating Partnership, a right of first in its immediate possession or control and opportunity arrangement and other conflict may not employ, or permit another to avoidance agreements with various affiliates employ, such funds or assets in any manner of the AIMCO Operating Partnership and the except for the exclusive benefit of your general partner, on such terms as the partnership. general partner, in its sole and absolute discretion, believes are advisable. The In general, your partnership's agreement of AIMCO Operating Partnership Agreement limited partnership and the AIMCO Operating expressly limits the liability of the Partnership Agreement have limitations on general partner by providing that the the liability of the general partner but general partner, and its officers and such limitations differ and provide more directors will not be liable or accountable protection for the general partner of the in damages to the AIMCO Operating AIMCO Operating Partnership. Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded
S-77 343 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re-
S-78 344 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, limited AIMCO Operating Partnership OP Unitholders have voting partners have voting rights Agreement, the holders of rights only with respect to in certain circumstances and the Preferred OP Units will certain limited matters such are not deemed to take part have the same voting rights as certain amendments and in the control of your as holders of the Common OP termination of the AIMCO partnership by virtue of Units. See "Description of Operating Partnership their voting rights. An OP Units" in the accompany- Agreement and certain affirmative vote by holders ing Prospectus. So long as transactions such as the of a majority of the any Preferred OP Units are institution of bankruptcy outstanding units is outstanding, in addition to proceedings, an assignment necessary for: the removal of any other vote or consent of for the benefit of creditors the general partner, the partners required by law or and certain transfers by the election of an additional or by the AIMCO Operating general partner of its substitute general part- Partnership Agreement, the interest in the AIMCO ner, an amendment to your affirmative vote or consent Operating Partnership or the partnership's agreement of of holders of at least 50% admission of a successor limited partnership and the of the outstanding Preferred general partner. dissolution of your OP Units will be necessary partnership before the date for effecting any amendment Under the AIMCO Operating of termination set forth in of any of the provisions of Partnership Agreement, the your partnership's agreement the Partnership Unit general partner has the of limited partnership. Designation of the Preferred power to effect the OP Units that materially and acquisition, sale, transfer, A general partner may cause adversely affects the rights exchange or other the dissolution of your or preferences of the disposition of any assets of partnership by retiring holders of the Preferred OP the AIMCO Operating unless, the remaining Units. The creation or Partnership (including, but general partner elects to issuance of any class or not limited to, the exercise continue your partnership or series of partnership units, or grant of any conversion, if the remaining general including, without option, privilege or partner fails to do so, the limitation, any partner- subscription right or any limited partners owning more ship units that may have other right available in the 50% of the then rights senior or superior to connection with any assets outstanding units elect to the Preferred OP Units, at any time held by the continue your partnership shall not be deemed to AIMCO Operating Partnership) and, if necessary, elect a materially adversely affect or the merger, new general partner. the rights or preferences of consolidation, the holders of Preferred OP reorganization or other In general, you have greater Units. With respect to the combination of the AIMCO voting rights in your exercise of the above Operating Partnership with partnership than you will described voting rights, or into another entity, all have as an OP Unitholder. OP each Preferred OP Units without the consent of the Unitholders can not remove shall have one (1) vote per OP Unitholders. the general partner of the Preferred OP Unit. AIMCO Operating Partnership. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partner-
S-79 345 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions The general partner of your Holders of Preferred OP Subject to the rights of partnership annually Units will be entitled to holders of any outstanding distributes substantially receive, when and as Preferred OP Units, the all of your partnership's declared by the board of AIMCO Operating Partnership Net Cash Flow (as defined in directors of the general Agreement requires the your partnership's agreement partner of the AIMCO general partner to cause the of limited partnership) with Operating Partnership, AIMCO Operating Partnership each partner receiving their quarterly cash distributions to distribute quarterly all, pro rata share in accordance at the rate of $0.50 per or such portion as the with their ownership of Preferred OP Unit; provided, general partner may in its units. Any proceeds received however, that at any time sole and absolute discretion from the sale or refi- and from time to time on or determine, of Available Cash nancing of your after the fifth anniversary (as defined in the AIMCO partnership's property will of the issue date of the Operating Partnership be distributed in ac- Preferred OP Units, the Agreement) generated by the cordance with your AIMCO Operating Partnership AIMCO Operating Partnership partnership's agreement of may adjust the annual during such quarter to the limited partnership. The distribution rate on the general partner, the special distributions payable to the Preferred OP Units to the limited partner and the partners are not fixed in lower of (i) 2.00% plus the holders of Common OP Units amount and depend upon the annual interest rate then on the record date es- operating results and net applicable to U.S. Treasury tablished by the general sales or refinancing notes with a maturity of partner with respect to such proceeds available from the five years, and (ii) the quarter, in accordance with disposition of your annual dividend rate on the their respective interests partnership's assets. The most recently issued AIMCO in the AIMCO Operating general partner designates a non-convertible preferred Partnership on such record record date to determine stock which ranks on a partners entitled to cash parity with its
S-80 346 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS distributions which is not Class H Cumulative Preferred date. Holders of any other be less than fifteen days Stock. Such distributions will Preferred OP Units issued in nor more the thirty days be cumulative from the date of the future may have priority before the distribution. No original issue. Holders of over the general partner, limited partner has pri- Preferred OP Units will not the special limited partner ority over any other limited be entitled to receive any and holders of Common OP partner as to distributions. distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as record date. defined below), all distributions declared upon The AIMCO Operating Partner- the Preferred OP Units and ship Agreement requires the any Parity Units shall be general partner to take such declared ratably in pro- reasonable efforts, as portion to the respective determined by it in its sole amounts of distributions and absolute discretion and accumulated, accrued and consistent with AIMCO's unpaid on the Preferred OP qualification as a REIT, to Units and such Parity Units. cause the AIMCO Operating Unless full cumulative dis- Partnership to distribute tributions on the Preferred sufficient amounts to en- OP Units have been declared able the general partner to and paid, except in limited transfer funds to AIMCO and circumstances, no enable AIMCO to pay stock- distributions may be holder dividends that will declared or paid or set (i) satisfy the requirements apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-81 347 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may not There is no public market There is no public market transfer or assign any or for the Preferred OP Units for the OP Units. The AIMCO any portion of his interest and the Preferred OP Units Operating Partnership in his limited partnership are not listed on any Agreement restricts the interest unless the general securities exchange. The transferability of the OP partner consents (which Preferred OP Units are Units. Until the expiration consent may be withheld at subject to restrictions on of one year from the date on the sole discretion of the transfer as set forth in the which an OP Unitholder general partner) and the AIMCO Operating Partnership acquired OP Units, subject limited partner complies Agreement. to certain exceptions, such with applicable state and OP Unitholder may not Federal securities laws. In Pursuant to the AIMCO transfer all or any por- addition, no transfer may be Operating Partnership tion of its OP Units to any made of less than 30 units. Agreement, until the transferee without the Notwithstanding the expiration of one year from consent of the general foregoing, a limited partner the date on which a holder partner, which consent may may gratuitously transfer of Preferred OP Units be withheld in its sole and all or any portion of his acquired Preferred OP Units, absolute discretion. After interest in his limited subject to certain the expiration of one year, partnership interest to his exceptions, such holder of such OP Unitholder has the spouse, any member of his Preferred OP Units may not right to transfer all or any family, a trust for the transfer all or any portion portion of its OP Units to benefit of those individuals of its Preferred OP Units to any person, subject to the or a corporation in which any transferee without the satisfaction of certain con- such partner has a majority consent of the general ditions specified in the interest. No assignment or partner, which consent may AIMCO Operating Partnership transfers will be permitted be withheld in its sole and Agreement, including the if such assignment or absolute discretion. After general partner's right of transfer would result in 50% the expiration of one year, first refusal. See or more of the limited such holders of Preferred OP "Description of OP Units -- partnership interest being Units has the right to Transfers and Withdrawals" assigned or transferred transfer all or any portion in the accompanying within any twelve-month of its Preferred OP Units to Prospectus. period. any person, subject to the satisfaction of certain After the first anniversary There are no redemption conditions specified in the of becoming a holder of rights associated with your AIMCO Operating Partner- Common OP Units, an OP units. ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-82 348 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 349 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 350 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 351 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 352 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 353 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 354 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 355 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 356 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for
S-91 357 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class The trustee may sell the Class I Preferred A Common Stock of AIMCO that is equal in Stock held in the trust to AIMCO or a value to the Liquidation Preference of the person, designated by the trustee, whose Preferred OP Units tendered for redemption, ownership of the Class I Preferred Stock or (iii) for Preferred OP Units redeemed will not violate the Class I Preferred after a two-year holding period, a number of Ownership Limit. Upon such sale, the shares of Class I Preferred Stock of AIMCO interest of the charitable beneficiaries in that pay an aggregate amount of dividends the shares sold will terminate and the equivalent to the distributions on the trustee will distribute to the prohibited Preferred OP Units tendered for redemption; transferee, the lesser of (i) the price paid provided that such shares are part of a by the prohibited transferee for the shares class or series of preferred stock that is or if the prohibited transferee did not give then listed on the NYSE or another national value for the shares in connection with the securities exchange. The Preferred OP Units event causing the shares to be held in the may not be redeemed at the option of the trust, the market price of such shares on AIMCO Operating Partnership. See the day of the event causing the shares to "Description of Preferred OP be held in the trust and (ii) the price per Units -- Redemption." share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 358 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee equal to 5% of the Net Cash Flow (as defined in your partnership's agreement of limited partnership) from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $64,690 in 1996, $65,846 in 1997 and $65,374 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 359 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $346,504 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 360 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The consolidated financial statements of Baywood Partners, Limited as of December 31, 1997 and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 361 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations -- for the nine months ended September 30, 1998 and 1997 (unaudited)............. F-3 Condensed Statements of Cash Flows -- for the nine months ended September 30, 1998 and 1997 (unaudited)............. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheet -- as of December 31, 1997 and 1996 (Unaudited).......................................... F-8 Consolidated Statements of Operations -- for the year ended December 31, 1997 and 1996 (Unaudited).................... F-9 Consolidated Statements of Cash Flows -- for the year ended December 31, 1997 and 1996 (Unaudited).................... F-10
F-1 362 BAYWOOD PARTNERS, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 288,500 Other assets................................................ 360,780 Investment property Land...................................................... $ 260,000 Building and related personal property.................... 4,771,555 ----------- 5,031,555 Less: Accumulated depreciation.............................. (3,543,002) 1,488,553 ----------- ----------- Total assets...................................... $ 2,137,833 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... $ 112,795 Notes payable............................................... 4,429,284 Partners' deficit................................. (2,404,246) ----------- Total liabilities and partners' deficit........... $ 2,137,833 ===========
See accompanying notes to financial statements. F-2 363 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $942,511 $944,228 Other income.............................................. 46,980 52,703 -------- -------- Total revenues.................................... 989,491 996,931 Expenses: Operating expenses........................................ 472,758 440,631 Depreciation expense...................................... 175,590 170,334 Interest expense.......................................... 282,597 285,105 Property tax expense...................................... 37,676 37,298 -------- -------- Total expenses.................................... 968,621 933,368 Net income........................................ $ 20,870 $ 63,563 ======== ========
See accompanying notes to financial statements. F-3 364 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- Operating Activities: Net income................................................ $ 20,870 $ 80,328 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization.......................... 175,590 170,334 Changes in accounts: Receivables and deposits and other assets............ (30,281) (49,579) Accounts payable and accrued expenses................ 16,205 (14,792) --------- --------- Net cash provided by operating activities......... 182,384 186,291 --------- --------- Investing Activities: Property improvements and replacements.................... (110,110) (93,195) --------- --------- Net cash used in investing activities............. (110,110) (93,195) --------- --------- Financing Activities: Payments on mortgage...................................... (40,651) (42,623) Partners' distributions................................... (162,927) (107,892) --------- --------- Net cash used in financing activities............. (203,578) (150,515) --------- --------- Net decrease in cash and cash equivalents......... (131,304) (57,419) Cash and cash equivalents at beginning of year............ 419,804 476,395 --------- --------- Cash and cash equivalents at end of period................ $ 288,500 $ 418,976 ========= =========
See accompanying notes to financial statements. F-4 365 BAYWOOD PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Baywood Partners, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 366 BAYWOOD PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 367 INDEPENDENT AUDITORS' REPORT General Partners Baywood Partners, Limited: We have audited the consolidated balance sheet of Baywood Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of operations and changes in partners' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Baywood Partners, Limited and its limited partnership interest as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina December 9, 1998 F-7 368 BAYWOOD PARTNERS, LIMITED CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Cash and cash equivalents................................... $ 419,804 $ 476,395 Receivables and deposits.................................... 93,448 92,753 Restricted escrows (Note B)................................. 98,611 94,558 Other assets................................................ 138,440 152,070 Investment properties (Note C): Land...................................................... 260,000 260,000 Buildings and related personal property................... 4,650,869 4,490,428 ----------- ----------- 4,910,869 4,750,428 Less accumulated depreciation............................. (3,356,836) (3,126,094) ----------- ----------- 1,554,033 1,624,334 ----------- ----------- $ 2,304,336 $ 2,440,110 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 19,844 $ 33,019 Tenant security deposits.................................. 27,490 33,490 Other liabilities......................................... 49,256 52,603 Mortgage notes payable (Note C)........................... 4,469,935 4,518,594 Partners' deficit........................................... (2,262,189) (2,197,596) ----------- ----------- $ 2,304,336 $ 2,440,110 =========== ===========
See accompanying notes to consolidated financial statements. F-8 369 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Revenues: Rental income............................................. $ 1,256,240 $ 1,253,668 Other income.............................................. 72,593 71,878 ----------- ----------- Total revenues.................................... 1,328,833 1,325,546 ----------- ----------- Expenses: Operating (Note D)........................................ 593,179 590,698 General and administrative (Note D)....................... 36,996 50,012 Depreciation.............................................. 230,742 212,794 Interest.................................................. 386,668 389,778 Property taxes............................................ 48,871 42,216 ----------- ----------- Total expenses.................................... 1,296,456 1,285,498 ----------- ----------- Net income.................................................. 32,377 40,048 Distributions to partners................................... (96,970) (50,352) Partners' deficit at beginning of year...................... (2,197,596) (2,187,292) ----------- ----------- Partners' deficit at end of year............................ $(2,262,189) $(2,197,596) =========== ===========
See accompanying notes to consolidated financial statements. F-9 370 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 --------- ----------- (UNAUDITED) Cash flows from operating activities: Net income................................................ $ 32,377 $ 40,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 230,742 212,794 Amortization of discounts and loan costs............... 29,445 29,113 Change in accounts: Receivables and deposits............................. (695) (11,132) Other assets......................................... (7,079) -- Accounts payable..................................... (13,175) 16,195 Tenant security deposit liabilities.................. (6,000) 1,800 Other liabilities.................................... (3,347) (38,179) --------- --------- Net cash provided by operating activities......... 262,268 250,639 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (160,441) (185,423) Net (deposits) receipts to restricted escrows............. (4,053) 61,984 --------- --------- Net cash used in investing activities............. (164,494) (123,439) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (57,395) (53,085) Distributions to partners................................. (96,970) (50,352) --------- --------- Net cash used in financing activities............. (154,365) (103,437) --------- --------- Net increase (decrease) in cash and cash equivalents........ (56,591) 23,763 Cash and cash equivalents at beginning of year.............. 476,395 452,632 --------- --------- Cash and cash equivalents at end of year.................... $ 419,804 $ 476,695 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for interest.................... $ 357,223 $ 361,532 ========= =========
See accompanying notes to consolidated financial statements F-10 371 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Baywood Partners, Limited (the "Partnership"), and its limited partnership interest in Baywood Apartments (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 226 unit apartment complex located in Jefferson Parish, Louisiana. The Partnership was organized as an Alabama limited partnership on February 15, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), API has contributed $100,000 to the Partnership for which it is entitled to a 1% operating interest in the profits, losses, credits and cash distributions of the Partnership. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Capital contributions of the limited partners aggregated $1,936,200. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership had made capital contributions of $1,442,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. F-11 372 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED) Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $111,612 and $131,024, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $98,611 and $94,558, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ----------- (UNAUDITED) First mortgage note payable in monthly installments of $33,623, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $4,388,487 $4,445,882 Second mortgage note payable in interest only monthly installments of $928, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 142,290 142,290 ---------- ---------- Principal balance at year end............................... 4,530,777 4,588,172 Less unamortized discount................................... (60,842) (69,578) ---------- ---------- $4,469,935 $4,518,594 ========== ==========
Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998........................................................ $ 62,053 1999........................................................ 67,090 2000........................................................ 72,536 2001........................................................ 78,424 2002........................................................ 84,789 Thereafter.................................................. 4,165,885 ---------- $4,530,777 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of payment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 373 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ----------- (UNAUDITED) Property management fee..................................... $65,846 $64,690 Reimbursement for services to affiliates.................... $29,742 $28,914 Construction fee............................................ $ -- $ 4,916 Construction oversight reimbursements....................... $ 3,456 $17,784
For the period from January 19, 1996, to August 31, 1997 the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. F-13 374 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has be merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 375 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 376 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 377 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 378 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 379 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 380 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 381 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 382 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 383 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 384 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 385 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 386 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 387 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 388 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 389 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 390 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 391 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 392 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 393 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 394 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 395 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 396 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 397 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 398 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 399 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 400 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 401
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 402 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 403
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 404 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 405 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 406 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 407
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 408 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 409 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 410 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 411
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 412 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 413 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 414 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 415 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 416 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 417 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 418 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 419 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 420 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 421 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 422 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 423 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 424 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Baywood Apartments, Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Baywood Apartments, Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $43,313 in cash, or 1,119.50 Common OP Units of the Purchaser, or 1,732.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997 and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 425 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 426 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 427 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 428
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 429
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 430
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 431
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 432 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 433 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Buccaneer Trace Limited Partnership in exchange for your choice of: 4.00 of our 8.0% Class Two Partnership Preferred Units; 2.75 of our Partnership Common Units; or $100 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $100 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 434 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Buccaneer Trace Limited Partnership.................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Lack of Availability of Audited Financial Statements............................... S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25
PAGE ----- Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-38 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-39 Summary of Reviews........................... S-40 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-50 THE OFFER...................................... S-53 Terms of the Offer; Expiration Date.......... S-53 Acceptance for Payment and Payment for Units...................................... S-53 Procedure for Tendering Units................ S-54 Withdrawal Rights............................ S-57
i 435
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-57 Proration.................................... S-58 Fractional OP Units.......................... S-58 Future Plans of the AIMCO Operating Partnership................................ S-58 Voting by the AIMCO Operating Partnership.... S-59 Dissenters' Rights........................... S-59 Conditions of the Offer...................... S-59 Effects of the Offer......................... S-62 Certain Legal Matters........................ S-62 Fees and Expenses............................ S-64 Accounting Treatment......................... S-64 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-65 Tax Consequences of Exchanging Units Solely for OP Units............................... S-65 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-66 Tax Consequences of Exchanging Units Solely for Cash................................... S-66 Disguised Sale Treatment..................... S-66 Adjusted Tax Basis........................... S-67 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-67 Passive Activity Losses...................... S-67 Tax Reporting................................ S-68 Foreign Offerees............................. S-68 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-68 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-70 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-77 DESCRIPTION OF PREFERRED OP UNITS.............. S-83 General...................................... S-83 Ranking...................................... S-83
PAGE ----- Distributions................................ S-83 Allocation................................... S-84 Liquidation Preference....................... S-84 Redemption................................... S-85 Voting Rights................................ S-85 Restrictions on Transfer..................... S-86 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-86 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-88 CONFLICTS OF INTEREST.......................... S-92 Conflicts of Interest with Respect to the Offer...................................... S-92 Conflicts of Interest that Currently Exist for Your Partnership....................... S-92 Competition Among Properties................. S-92 Features Discouraging Potential Takeovers.... S-92 Future Exchange Offers....................... S-92 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-93 LEGAL MATTERS.................................. S-94 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 436 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO-GP, Inc. ("AIMCO GP") acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Realty, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,306,000 less approximately $465,245 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 437 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 438 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 439 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 440 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 441 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in May 2004. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. S-6 442 - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-7 443 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 444 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.94% per annum, which resulted in an increase from the initial capitalization rate of 0.75%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.00%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. We determined your partnership's value as follows: Net operating income........................................ $ 804,000 Capitalization rate......................................... 11.00% ----------- Gross valuation of partnership properties................... $ 7,306,000 Net Cash Shortfall.......................................... 231,274 Plus: Cash and cash equivalents............................. 44,764 Plus: Other partnership assets, net of security deposits.... 239,503 Less: Mortgage debt, including accrued interest............. (7,012,127) Less: Accounts payable and accrued expenses................. (124,948) Less: Other liabilities..................................... (36,571) ----------- Partnership valuation before taxes and certain costs........ 647,895 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (485,245) Less: Closing costs......................................... (182,650) ----------- Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. n/a ----------- Estimated net valuation of units............................ 0 Total number of units............................. 61.0 ----------- Estimated valuation per unit................................ 0 =========== Cash consideration per unit................................. $ 0 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 4 Preferred OP Units per unit. S-9 445 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 100 Partnership Preferred Units................................. $ 100 Partnership Common Units.................................... $ 100 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(64,063)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a S-10 446 financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Buccaneer Trace Limited Partnership is a South Carolina limited partnership which was formed on October 31, 1985 for the purpose of owning and operating a single apartment property located in Savannah, Georgia, known as "Buccaneer Trace Apartments." Buccaneer Trace Apartments consists of 208 units and was built in 1986. Your partnership has no employees. As of September 30, 1998, there were 61 units of limited partnership interest issued and outstanding, which were held of record by 56 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,928,000 of limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership did not pay any distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $6,960,843, payable to 1st Union and Lehman, which bears interest at the rate of 8.94%. The mortgage debt is due in May 2004. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, your general partner has no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 447 THE OFFER In exchange for each of your units, we are offering you a choice of: - 4.00 of our Class Two Partnership Preferred Units; - 2.75 of our Partnership Common Units; or - $100 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 61 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 4.00 Preferred OP Units, 2.75 Common OP Units, or $100 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 448 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 449 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $100 in cash, 4.00 Preferred OP Units or 2.75 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 450 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $100. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $11,999.92 for the fiscal year ended December 31, 1998. The property manager received management fees of $75,349.03 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,525 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 451 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 452
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 453 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. (16,740) 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 454
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 455 SUMMARY FINANCIAL INFORMATION OF BUCCANEER TRACE LIMITED PARTNERSHIP The summary financial information of Buccaneer Trace Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Buccaneer Trace Limited Partnership for the years ended December 31, 1997, and 1996 is based on unaudited financial statements. The December 31, 1995, 1994, and 1993 information is based on unaudited financial information which is not included in the Prospectus Supplement. This information should be read in conjunction with such unaudited financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." BUCCANEER TRACE LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, -------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 -------- --------- ---------- -------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues.................... $ 1,089 $ 1,071 $ 1,458 $ 1,509 $ 1,407 $ 1,390 $ 1,364 Net Income/(Loss)................. $ (52) $ (54) $ (142) $ (43) $ (206) $ (128) $ (159) Net Income per limited partnership unit............................ $(836.07) $ (868.85) $(2,311.48) $(704.92) $(3,344.26) $(2,081.97) $(2,573.77) Distributions per limited partnership unit................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- Distributions per limited partnership unit (which represent a return of capital)........................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents............................. $ 53 $ 66 $ 76 $ 275 $ 237 $ 493 $ 449 Real Estate, Net of Accumulated Depreciation.......... $ 4,554 $ 4,719 $ 4,701 $ 4,848 $ 5,002 $ 5,110 $ 5,289 Total Assets.......................................... $ 4,932 $ 5,068 $ 5,050 $ 5,353 $ 5,460 $ 5,842 $ 5,896 Notes Payable......................................... $ 6,974 $ 7,024 $ 7,012 $ 7,331 $ 7,398 $ 7,460 $ 7,515 General Partners' Capital/ (Deficit).................... $ (53) $ (53) $ (53) $ (52) $ (52) $ (50) $ (49) Limited Partners' Capital/ (Deficit).................... $(2,176) $(2,036) $(2,124) $(1,983) $(1,940) $(1,736) $(1,609) Partners' Capital (Deficit)............................. $(2,229) $(2,089) $(2,177) $(2,035) $(1,992)) $(1,786) $(1,658) Total Distributions..................................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Book value per limited partnership unit................. $(35.67) $(33.38) $ 34.82 $(32.51) $(31.80) $(28.46) $(26.38) Net increase (decrease) in cash and cash equivalents.... $ (23) $ (209) $ (199) $ 38 $ (256) $ 44 $ 313 Net cash provided by operating activities............... $ 52 $ 317 $ 419 $ 181 $ (84) $ 131 $ 169 Ratio of earnings to fixed charges...................... 0.89/1 0.89/1 0.78/1 0.94/1 0.71/1 0.82/1 0.78/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
BUCCANEER AIMCO TRACE OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $6.88 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $8.00 $ 0
S-20 456 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 457 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,306,000 less approximately $465,245 of deferred maintenance and investment not considered by the appraiser. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 458 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 459 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Buccaneer Trace Limited Partnership have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's property, including the initial construction, which occurred in 1985. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-24 460 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 461 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-26 462 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .6% interest, consisting of a 0 % limited partnership interest and a .6% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 463 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 464 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in May 2004. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger S-29 465 would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 466 - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after S-31 467 offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.94% per annum, which resulted in an increase from the initial capitalization rate of 0.75%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.00%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 468 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value..... $803,625 11.00% $7,306,000
- --------------- (1) The total net operating income is equal to total revenues of $1,451,214, less total expenses of $585,189 and recurring replacement costs of $62,400. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $0. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. We believe that if the partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. Net operating income........................................ $ 804,000 Capitalization rate......................................... 11.00% ----------- Gross valuation of partnership properties................... 7,306,000 Net Cash Shortfall.......................................... 231,274 Plus: Cash and cash equivalents............................. 44,764 Plus: Other partnership assets, net of security deposits.... 239,503 Less: Mortgage debt, including accrued interest............. (7,012,127) Less: Accounts payable and accrued expenses................. (124,948) Less: Other liabilities..................................... (36,571) Partnership valuation before taxes and certain costs........ 647,895 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (485,245) Less: Closing costs......................................... (182,650) ----------- Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. n/a ----------- Estimated net valuation of units............................ 0 Total number of units............................. 61.0 ----------- Estimated valuation per unit................................ $ 0 =========== Cash consideration per unit................................. $ 0 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 4 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per S-33 469 unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $0 or 0.00% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has decreased from $54,000 for the nine months ended September 30, 1997 to $52,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. S-34 470 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $100, based on a total estimated value of your partnership's property of $7,306,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $8.00 per year on the number of Preferred OP Units, or distributions of $6.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. S-35 471 The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 472 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 100 Partnership preferred units................................. $ 100(1) Partnership common units.................................... $ 100(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(64,063)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 473 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 17.5%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; (vi) cash reserves; and (vii) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $0 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $64,063 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $0 per unit, going concern value of $0 per unit and liquidation value of $0 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily S-38 474 represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(100), $(100) and $(100). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 475 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
---------- Total Revenues.............................................. $1,532,560 Operating Expenses.......................................... (652,234) Replacement Reserves -- Net................................. (89,827) Debt Service................................................ (676,101) Capital Expenditures........................................ (39,950) ---------- Net Cash Flow..................................... $ 74,248 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be S-40 476 considered as indicative of what the audited operating results for fiscal 1998 will be. In fact, actual revenues for the partnership for the year ended December 31, 1998 were less than the budget amounts. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of October and November, 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary S-41 477 capital expenditure estimates in the amount of $465,245. Stanger observed that your partnership liquidation value was negative, however a minimum value of $100 was ascribed to a unit. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $804,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $20,000 per annum; (ii) cash reserves; and (iii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 40%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.7%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was negative and therefore deemed 0. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $100 per unit is equal to management's estimate of liquidation value, and reflects a $100 premium to management's estimate of going concern value of $0. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. Review of Appraisal. Stanger observed that an appraisal was prepared by Joseph J. Blake and Associates as of March 18, 1997 which estimated the fee simple market value of the property at $8,800,000. Stanger observed that such appraisal indicates that the appraiser relied primarily upon the income approach to value S-42 478 and secondarily on the sales comparison approach to value. The appraiser did not consider the cost approach in its final estimate of value. Stanger further observed that in performing the income approach, the appraiser estimated effective gross income at $1,478,256 and expenses, after a $200 per unit replacement reserve, at $594,287 resulting in net operating income of $883,969 which the appraiser then capitalized at a capitalization rate of 10% to derive an estimate of value of $8,839,692 which was rounded to $8,800,000. The appraiser identified sales comparables with a capitalization rate range of 10.3% to 11.5% with an average of 11.0% and utilized a 10.0% capitalization rate in the income approach. Stanger observed that the actual net operating income as reported by us for 1997 was $804,000 after a $300 replacement reserve or approximately $80,000 less than estimated by the appraiser. Stanger observed that utilizing the same capitalization rate utilized by the appraiser and the 1997 net operating income reported by us would result in a value of approximately $8,000,000. Stanger observed that in connection with Stanger's estimate of net asset value, Stanger estimated the value of the property at $7,940,000, or approximately 99.25% of the appraisal value adjusted for actual reported net operating income capitalized at 10%. Further, Stanger observed that even if Stanger had utilized the adjusted value of $8,000,000 in its analysis of net asset value, Stanger's net asset value would have been zero. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income and cash reserves for the property, a direct capitalization rate of 9.75% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt assuming a 7% interest rate. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 40% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 40% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.2% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately more than 85% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $0, $0 and $0 representing premiums (discounts) to the offer price of $100. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated S-43 479 to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with S-44 480 all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Buccaneer Trace Limited Partnership, is a South Carolina limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in December 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 56 limited partners of your partnership and a total of 61 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the [property] described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 31, 1985 for the purpose of owning an apartment property located in Savannah, Georgia, known as "Buccaneer Trace Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1986 and consists of 208 apartment units. There are 160 one-bedroom apartments and 48 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 91.49% in 1998, 97.12% in 1997 and 97.12% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $465,245 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, gutters and downspouts, plumbing, stairwells, drives and parking lot, landscape and irrigation, and drainage. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $558 $575 $531 $524 $522
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $106,916 of $2,993,172 of assessed valuation with a current yearly tax rate of 3.57%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 3.64% of such improvements. S-45 481 PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 92% and $545, respectively, at December 31, 1998, compared to 97% and $558, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy and rental rates to improve in the near future because of the property's desirable location and planned improvements. In addition, the general partner noted that it expects to spend approximately $465,245 for capital replacements and improvements at the property in 1999 to repair and improve the property's roofing, gutters, plumbing, stairwells, parking lot, landscape and irrigation, and drainage. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. S-46 482 CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $6,960,843, payable to 1st Union and Lehman, which bears interest at a rate of 8.94%. The mortgage debt is due on May 2004. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, your general partner has no outstanding loans payable to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,928,000 of limited partnership units in 1985 for $54,348 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013 unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct, pursuant of the authority granted to promote the interests of your partnership. Moreover, the general partners will not be liable to your partnership or limited partner because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of S-47 483 such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, the general partners of your partnership are indemnified for any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct, pursuant of the authority granted to promote the interests of your partnership. Such indemnification includes reasonable fees and expenses of attorneys engaged by the general partners in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $54,348. There have been no distributions since 1993. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .6% interest in your partnership, including no limited partnership units held by us and the interest held by us as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ Not 1994........................................................ available 1995........................................................ $11,480 1996........................................................ 13,000 1997........................................................ 15,000 1998........................................................ 12,000
S-48 484 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- Not 1994........................................................ available 1995........................................................ $71,380 1996........................................................ 74,140 1997........................................................ 73,000 1998........................................................ 75,349
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 485 SELECTED FINANCIAL INFORMATION OF BUCCANEER TRACE LIMITED PARTNERSHIP Set forth on page F1 of this Prospectus Supplement is the index to the financial statements of your partnership. You are urged to read the financial statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Buccaneer Trace Limited Partnership taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from financial information which is not included in this Prospectus Supplement. See "Index to Financial Statements."
BUCCANEER TRACE LIMITED PARTNERSHIP ---------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- -------- ---------- ---------- ---------- (in thousands, except per unit data) Cash and Cash Equivalents........... $ 53 $ 66 $ 76 $ 275 $ 237 $ 493 $ 449 Land & Building..................... 7,951 7,876 7,918 7,825 7,749 7,639 7,607 Accumulated Depreciation............ (3,397) (3,157) (3,217) (2,977) (2,747) (2,529) (2,318) Other Assets........................ 325 283 273 230 221 239 158 -------- -------- ---------- -------- ---------- ---------- ---------- Total Assets................ $ 4,932 $ 5,068 $ 5,050 $ 5,353 $ 5,460 $ 5,842 $ 5,896 ======== ======== ========== ======== ========== ========== ========== Notes Payable....................... $ 6,974 $ 7,024 $ 7,012 $ 7,331 $ 7,398 $ 7,460 $ 7,515 Other Liabilities................... 187 133 215 57 54 168 39 -------- -------- ---------- -------- ---------- ---------- ---------- Total Liabilities........... 7,161 $ 7,157 $ 7,227 $ 7,388 $ 7,452 $ 7,628 $ 7,554 -------- -------- ---------- -------- ---------- ---------- ---------- Partners Capital (Deficit)................. $ (2,229) $ (2,089) $ (2,177) $ (2,035) $ (1,992) $ (1,786) $ (1,658) ======== ======== ========== ======== ========== ========== ==========
BUCCANEER TRACE LIMITED PARTNERSHIP ---------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- -------- ---------- ---------- ---------- (in thousands, except per unit data) Rental Revenue...................... $ 1,007 $ 1,028 $ 1,393 $ 1,434 $ 1,325 $ 1,309 $ 1,302 Other Income........................ 82 43 65 75 82 81 62 -------- -------- ---------- -------- ---------- ---------- ---------- Total Revenue............... $ 1,089 $ 1,071 $ 1,458 $ 1,509 $ 1,407 $ 1,390 $ 1,364 -------- -------- ---------- -------- ---------- ---------- ---------- Operating Expenses.................. $ 401 $ 361 $ 596 $ 491 $ 560 $ 464 $ 445 Depreciation........................ 180 180 240 230 218 211 236 Interest Expense.................... 474 497 654 713 717 724 730 Property Taxes...................... 86 87 110 118 118 119 112 -------- -------- ---------- -------- ---------- ---------- ---------- Total Expenses.............. $ 1,141 $ 1,125 $ 1,600 $ 1,552 $ 1,613 $ 1,518 $ 1,523 -------- -------- ---------- -------- ---------- ---------- ---------- Net loss before ordinary items...... $ (52) $ (54) $ (142) $ (43) $ (206) (128) $ (159) Extraordinary Items................. -- -- -- -- -- -- -- -------- -------- ---------- -------- ---------- ---------- ---------- Net loss............................ $ (52) $ (54) $ (142)_ $ (43) $ (206) $ (128) $ (159) ======== ======== ========== ======== ========== ========== ========== Net Income per limited partnership unit.............................. $(836.07) $(886.85) $(2,311.48) $(704.92) $(3,344.26) $(2,081.97) $(2,573.77) ======== ======== ========== ======== ========== ========== ========== Distributions per limited partnership unit.................. $ -- $ -- $ -- $ -- $ -- $ $ -- ======== ======== ========== ======== ========== ========== ==========
S-50 486 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership incurred a net loss of $52,000 for the nine months ended September 30, 1998, compared to $54,000 for the nine months ended September 30, 1997. The decrease in net loss of $2,000 was primarily the result of an increase in revenues, coupled with a decrease in interest expense, offset by higher operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,089,000 for the nine months ended September 30, 1998, compared to $1,071,000 for the nine months ended September 30, 1997, an increase of $18,000, or 1.68%. The Partnership increased average rental rates by an average of 1.5%. However, this was offset by a decrease in occupancy of 5.63% to 91.4%. Overall, the slight increase in total revenues was due to higher laundry income, lease cancellation fees, clubhouse rentals and corporate units rentals. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $401,000 for the nine months ended September 30, 1998, compared to $361,000 for the nine months ended September 30, 1997, an increase of $40,000, or 11.08%. The increase is due to increased administrative salaries and property maintenance expenses. The Partnership incurred higher plumbing repairs and interior painting costs during 1998 as compared to 1997. Partnership Property management expenses totaled $55,000 for both periods. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $474,000 for the nine months ended September 30, 1998, compared to $497,000 for the nine months ended September 30, 1997, a decrease of $23,000, or 4.63%. This decrease is due to a lower interest rate on the debt that was refinanced during the second quarter of 1997. The expense for 1998 reflects the new debt for the entire period, whereas the 1997 amount reflects the lower expense for only one quarter. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership incurred a net loss of $142,000 for the year ended December 31, 1997, compared to a net loss of $43,000 for the year ended December 31, 1996. The increase in net loss of $99,000 was primarily the result of a decrease in revenues and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. S-51 487 REVENUES Rental and other property revenues from the partnership's property totaled $1,458,000 for the year ended December 31, 1997, compared to $1,509,000 for the year ended December 31, 1996, a decrease of $51,000, or 3.38%. This decrease is due primarily to a $14,000 increase in bad debts during 1997 due to an increase in delinquent tenants and the move-out of tenants with outstanding past due rent. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $596,000 for the year ended December 31, 1997, compared to $491,000 for the year ended December 31, 1996, an increase of $105,000 or 21.38%. The increase is primarily due to an increase in rental concessions and promotions and is also due to gutter repair and exterior painting projects undertaken at the property during 1997, with no similar projects during 1996. Management expenses totaled $73,000 for the year ended December 31, 1997, compared to $74,000 for the year ended December 31, 1996, a decrease of $1,000, or 1.35%. DEPRECIATION EXPENSE Depreciation expense increased $10,000 (4.35%) to $240,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $654,000 for the year ended December 31, 1997, compared to $713,000 for the year ended December 31, 1996, a decrease of $59,000, or 8.27%. The decrease is primarily due to a lower interest rate and a reduced principal balance as a result of the refinancing of the mortgage during the second quarter of 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $43,000 for the year ended December 31, 1996, compared to a net loss of $206,000 for the year ended December 31, 1995. The decrease in net loss of $163,000 was primarily the result of an increase in revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,509,000 for the year ended December 31, 1996, compared to $1,407,000 for the year ended December 31, 1995, an increase of $102,000, or 7.25%. This increase is due primarily to an 8.3% increase in average rental rates. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $491,000 for the year ended December 31, 1996, compared to $560,000 for the year ended December 31, 1995, a decrease of $69,000 or 12.32%. This decrease is primarily due to interior and exterior maintenance projects undertaken at the property during 1996, with no similar projects during 1995. Management expenses totaled $74,000 for the year ended December 31, 1996, compared to $68,000 for the year ended December 31, 1995, an increase of $6,000, or 8.82%. The increase resulted from higher revenues as management fees are paid based on a percentage of rental revenues. S-52 488 DEPRECIATION EXPENSE Depreciation expense increased $12,000 (5.50%) to $230,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $713,000 for the year ended December 31, 1996, compared to $717,000 for the year ended December 31, 1995, a decrease of $4,000, or 0.56%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $53,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. The mortgage indebtedness was successfully refinanced during the second quarter of 1997. At September 30, 1998, the outstanding balance was $6,974,000. The mortgage requires monthly payments of approximately $56,000 until May, 2004, at which time a balloon payment of approximately $6,644,000 will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 8.94%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 489 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 61 units of your partnership (up to 15.25 units) for consideration per unit of (i) 4.00 Preferred OP Units, (ii) 2.75 Common OP Units, or (iii) $100 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-54 490 , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 491 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 492 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 493 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 494 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 495 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 496 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 497 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 498 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 499 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were heard on February 8, 1999, but no decision has been reached by the Court. S-64 500 While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 501 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 502 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 503 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 504 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 505 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 506 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2013. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating operate, lease, manage, deal with, finance Partnership is to conduct any business that and refinance your partnership's property may be lawfully conducted by a limited for investment, capital appreciation and the partnership organized pursuant to the production of income. Subject to Delaware Revised Uniform Limited Part- restrictions contained in your partnership's nership Act (as amended from time to time, agreement of limited partnership, your or any successor to such statute) (the partnership may do all things necessary for "Delaware Limited Partnership Act"), or incidental to the protection and benefit provided that such business is to be of your partnership, including, without conducted in a manner that permits AIMCO to limitation, borrowing funds and creating be qualified as a REIT, unless AIMCO ceases liens. to qualify as a REIT. The AIMCO Operating Partner-
S-71 507 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 61 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or not enter into agreements with itself or any contribute funds or other assets to its of its affiliates for services, except for subsidiaries or other persons in which it agreements for the man- has an equity investment,
S-72 508 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agement and operations of your partnership's and such persons may borrow funds from the property and other such agreements set forth AIMCO Operating Partnership, on terms and in your partnership's agreement of limited conditions established in the sole and partnership. The general partner may also absolute discretion of the general partner. lend money to your partnership as the To the extent consistent with the business general partner deems necessary for the purpose of the AIMCO Operating Partnership payment of any partnership obligations and and the permitted activities of the general expenses, which loans, will be repaid with partner, the AIMCO Operating Partnership may interest at the rate of 1% per annum over transfer assets to joint ventures, limited such general partners' own cost of funds liability companies, partnerships, (but in no event to exceed the maximum legal corporations, business trusts or other rate); provided, however, that the general business entities in which it is or thereby partner must first make reasonable efforts becomes a participant upon such terms and to secure loans from an unaffiliated third subject to such conditions consistent with party. the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized, on behalf of your partnership, contains no restrictions on borrowings, and to borrow funds, execute and issue mortgage the general partner has full power and notes and other evidences of indebtedness authority to borrow money on behalf of the and secure such indebtedness by mortgage, AIMCO Operating Partnership. The AIMCO deed of trust, pledge or other lien; Operating Partnership has credit agreements provided, however, that a refinancing of that restrict, among other things, its your partnership's property will be in the ability to incur indebtedness. sole discretion of the managing general partner.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP review the books and records of your Unitholder's own expense, to obtain a partnership upon reasonable notice during current list of the name and last known business hours at the registered office of business, residence or mailing address of your partnership at such limited partners' the general partner and each other OP expense. Unitholder.
Management Control The general partner of your partnership is All management powers over the business and responsible for management of your affairs of the AIMCO Operating Partnership partnership's business and assets and have are vested in AIMCO-GP, Inc., which is the all rights and powers generally conferred by general partner. No OP Unitholder has any law or which are necessary, advisable or right to participate in or exercise control consistent in connection therewith, subject or management power over the business and to the limitations contained in your affairs of the AIMCO Operating Partner- partnership's agreement of limited ship. The OP Unitholders have the right to partnership. No limited partner has vote on
S-73 509 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP the right to take part in or interfere in certain matters described under "Comparison any manner with the conduct or control of of Your Units and AIMCO OP Units -- Voting the business of your partnership or the Rights" below. The general partner may not right or authority to act for or bind your be removed by the OP Unitholders with or partnership. without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or the limited partners and is to the AIMCO Operating Partnership for indemnified for any loss or damage resulting losses sustained, liabilities incurred or from any act or omission performed or benefits not derived as a result of errors omitted in good faith, which does not in judgment or mistakes of fact or law of constitute fraud, gross negligence or any act or omission if the general partner willful misconduct, pursuant of the author- acted in good faith. The AIMCO Operating ity granted to promote the interests of your Partnership Agreement provides for partnership. Moreover, the general partner indemnification of AIMCO, or any director or will not be liable to your partnership or officer of AIMCO (in its capacity as the the limited partner because any taxing previous general partner of the AIMCO authorities disallow or adjust any deduction Operating Partnership), the general partner, or credits in your partnership income tax any officer or director of general partner returns. or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions
S-74 510 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner upon a vote the business and affairs of the AIMCO of the limited partners owning more than 50% Operating Partnership. The general partner of the units. A general partner may resign may not be removed as general partner of the at any time; provided, however that such AIMCO Operating Partnership by the OP resignation does not cause the default under Unitholders with or without cause. Under the or result in the acceleration of the payment AIMCO Operating Partnership Agreement, the of any loan secured by your partnership's general partner may, in its sole discretion, property. The affirmative vote or written prevent a transferee of an OP Unit from consent of all of the limited partners and becoming a substituted limited partner the general partner is required for the pursuant to the AIMCO Operating Partnership election and admission of a substitute Agreement. The general partner may exercise general partner. A limited partner may not this right of approval to deter, delay or transfer its units without the written hamper attempts by persons to acquire a consent of the general partner which may be controlling interest in the AIMCO Operating withheld in sole and absolute discretion of Partnership. Additionally, the AIMCO the general partner. Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the unanimous set forth in the AIMCO Operating Partnership action of the general partner to effect a Agreement, whereby the general partner may, ministerial change which does not materially without the consent of the OP Unitholders, affect the rights of the limited partners amend the AIMCO Operating Partnership and as required by law. All other amend- Agreement, amendments to the AIMCO Operating ments must be approved by the limited Partnership Agreement require the consent of partners owning more than 50% of the units the holders of a majority of the outstanding and the general partner. Limited partners Common OP Units, excluding AIMCO and certain owning at least 10% of the units have the other limited exclusions (a "Majority in power to propose amendments to your Interest"). Amendments to the AIMCO partnership's agreement of limited Operating partnership.
S-75 511 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives 1/2 of 1% of the gross operating its capacity as general partner of the AIMCO revenue of your partnership's property as a Operating Partnership. In addition, the partnership administration fee. Moreover, AIMCO Operating Partnership is responsible the general partner or certain affiliates for all expenses incurred relating to the may be entitled to compensation for addi- AIMCO Operating Partnership's ownership of tional services rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner, unless it is deemed to Except for fraud, willful misconduct or be taking part in the control of the gross negligence, no OP Unitholder has business, is bound by, or is personally personal liability for the AIMCO Operating liable for the expenses, liabilities or Partnership's debts and obligations, and obligation of your partnership and his liability of the OP Unitholders for the liability is limited solely to the amount of AIMCO Operating Partnership's debts and his capital contribution to your obligations is generally limited to the partnership, together with the undistributed amount of their investment in the AIMCO share of the profits of your partnership Operating Partnership. However, the form time to time credited to its capital limitations on the liability of limited account and any money or other property partners for the obligations of a limited wrongfully paid or conveyed to him on partnership have not been clearly account of his contribution. established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-76 512 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership Unless otherwise provided for in the possesses an overriding fiduciary obligation relevant partnership agreement, Delaware law to your partnership. However, the general generally requires a general partner of a partner is not required to devote all of its Delaware limited partnership to adhere to time or business efforts to the affairs of fiduciary duty standards under which it owes your partnership, but it must devote so much its limited partners the highest duties of of its time and attention to your good faith, fairness and loyalty and which partnership as is necessary and advisable to generally prohibit such general partner from successfully manage the affairs of your taking any action or engaging in any partnership. In addition, any partner may transaction as to which it has a conflict of engage in or possess an interest in other interest. The AIMCO Operating Partnership business ventures of every nature and Agreement expressly authorizes the general description even if such ventures are partner to enter into, on behalf of the competitive with your partnership and are AIMCO Operating Partnership, a right of located in the market area or vicinity of first opportunity arrangement and other your partnership's property. conflict avoidance agreements with various affiliates of the AIMCO Operating In general, your partnership's agreement of Partnership and the general partner, on such limited partnership and the AIMCO Operating terms as the general partner, in its sole Partnership Agreement have limitations on and absolute discretion, believes are the liability of the general partner but advisable. The AIMCO Operating Partnership such limitations differ and provide more Agreement expressly limits the liability of protection for the general partner of the the general partner by providing that the AIMCO Operating Partnership. general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-77 513 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital
S-78 514 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the limited AIMCO Operating Partnership OP Unitholders have voting partners have voting rights Agreement, the holders of rights only with respect to only with respect to the the Preferred OP Units will certain limited matters such following issues: sale or have the same voting rights as certain amendments and conversion to condominiums as holders of the Common OP termination of the AIMCO or other disposition of all Units. See "Description of Operating Partnership or substantially all of the OP Units" in the accompany- Agreement and certain assets of your partner- ing Prospectus. So long as transactions such as the ship, amendments to your any Preferred OP Units are institution of bankruptcy partnership's agreement of outstanding, in addition to proceedings, an assignment limited partnership, any other vote or consent of for the benefit of creditors termination of your partners required by law or and certain transfers by the partnership, removal of a by the AIMCO Operating general partner of its general partner, election Partnership Agreement, the interest in the AIMCO and admission of a affirmative vote or consent Operating Partnership or the substitute general partner of holders of at least 50% admission of a successor and election of a trustee to of the outstanding Preferred general partner. liquidate and distribute OP Units will be necessary your partnership's assets for effecting any amendment Under the AIMCO Operating upon retirement of the last of any of the provisions of Partnership Agreement, the remaining general partner. the Partnership Unit general partner has the Each matter requires the Designation of the Preferred power to effect the majority vote of the holders OP Units that materially and acquisition, sale, transfer, of units for approval, adversely affects the rights exchange or other except that the election of or preferences of the disposition of any assets of a substitute general partner holders of the Preferred OP the AIMCO Operating requires the unanimous vote Units. The creation or Partnership (including, but of all limited partners and issuance of any class or not limited to, the exercise the consent of the general series of partnership units, or grant of any conversion, partner. including, without option, privilege or limitation, any partner- subscription right or any A general partner may cause ship units that may have other right available in the dissolution of your rights senior or superior to connection with any assets partnership by retiring the Preferred OP Units, at any time held by the unless, the remaining shall not be deemed to AIMCO Operating Partnership) general partner, or if none, materially adversely affect or the merger, all of the limited partners, the rights or preferences of consolidation, agree to continue your the holders of Preferred OP reorganization or other partnership and elect a Units. With respect to the combination of the AIMCO successor general partner by exercise of the above Operating Partnership with the affirmative vote of all described voting rights, or into another entity, all of the limited partners. each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. In general, you have greater Preferred OP Unit. voting rights in your The general partner may partnership than you will cause the dissolution of the have as an OP Unitholder. OP AIMCO Operating Partnership Unitholders can not remove by an "event of withdrawal," the general partner of the as defined in the Delaware AIMCO Operating Partnership. Limited Partnership Act (including, without limi- tation, bankruptcy), unless,
S-79 515 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash from at the rate of $0.50 per or such portion as the Operations are to be Preferred OP Unit; provided, general partner may in its distributed no less often however, that at any time sole and absolute discretion than quarterly. The dis- and from time to time on or determine, of Available Cash tributions payable to the after the fifth anniversary (as defined in the AIMCO partners are not fixed in of the issue date of the Operating Partnership amount and depend upon the Preferred OP Units, the Agreement) generated by the operating results and net AIMCO Operating Partnership AIMCO Operating Partnership sales or refinancing pro- may adjust the annual during such quarter to the ceeds available from the distribution rate on the general partner, the special disposition of your Preferred OP Units to the limited partner and the partnership's assets. No lower of (i) 2.00% plus the holders of Common OP Units limited partner has the annual interest rate then on the record date es- right to demand or receive applicable to U.S. Treasury tablished by the general property other than cash, notes with a maturity of partner with respect to such although the general partner five years, and (ii) the quarter, in accordance with may distribute property annual dividend rate on the their respective interests other than cash. Your most recently issued AIMCO in the AIMCO Operating partnership has not made non-convertible preferred Partnership on such record distributions in the past stock which ranks on a date. Holders of any other and is not projected to make parity with its Class H Preferred OP Units issued in distributions in 1999. Cumulative Preferred Stock. the Such distributions will be
S-80 516 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cumulative from the date of future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner are not listed Agreement re-
S-81 517 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS by such person if: (1) such on any securities exchange. stricts the transferability transfer is not in The Preferred OP Units are of the OP Units. Until the contravention with any of subject to restrictions on expiration of one year from the provision of your part- transfer as set forth in the the date on which an OP nership's agreement of AIMCO Operating Partnership Unitholder acquired OP limited partnership, Agreement. Units, subject to certain including the investment exceptions, such OP representations required to Pursuant to the AIMCO Unitholder may not transfer be made by each limited Operating Partnership all or any portion of its OP partner, (2) such transfer Agreement, until the Units to any transferee will not cause a termination expiration of one year from without the consent of the of your partnership for the date on which a holder general partner, which Federal income tax purposes, of Preferred OP Units consent may be withheld in (3) a written assignment has acquired Preferred OP Units, its sole and absolute been duly executed and subject to certain discretion. After the acknowledged by the assignor exceptions, such holder of expiration of one year, such and assignee, with the Preferred OP Units may not OP Unitholder has the right written approval of the transfer all or any portion to transfer all or any managing general partner of its Preferred OP Units to portion of its OP Units to which may be withheld in the any transferee without the any person, subject to the sole and absolute discretion consent of the general satisfaction of certain con- of the managing general partner, which consent may ditions specified in the partner, (4) the assignee be withheld in its sole and AIMCO Operating Partnership represents it satisfies the absolute discretion. After Agreement, including the suitability requirement the expiration of one year, general partner's right of applicable to limited such holders of Preferred OP first refusal. See partners, (5) the interest Units has the right to "Description of OP Units -- assigned is not less than transfer all or any portion Transfers and Withdrawals" 1/2 unit, except in speci- of its Preferred OP Units to in the accompanying fied circumstances and (6) any person, subject to the Prospectus. the assignee and assignor satisfaction of certain satisfy other conditions set conditions specified in the After the first anniversary for in your partnership's AIMCO Operating Partner- of becoming a holder of agreement of limited ship Agreement, including Common OP Units, an OP partnership. the general partner's right Unitholder has the right, There are no redemption of first refusal. subject to the terms and rights associated with your conditions of the AIMCO units. After a one-year holding Operating Partnership period, a holder may redeem Agreement, to require the Preferred OP Units and AIMCO Operating Partnership receive in exchange to redeem all or a portion therefor, at the AIMCO Oper- of the Common OP Units held ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to acquire some or all of the ten-
S-82 518 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 519 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 520 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 521 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 522 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 523 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 524 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 525 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 526 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 527 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 528 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/2 of 1% of the gross operating revenue of your partnership's property as a partnership administration fee from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $74,140 in 1996, $73,000 in 1997 and $75,349 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 529 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,525 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 530 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-95 531 BUCCANEER TRACE LIMITED PARTNERSHIP INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Note A -- Basis of Presentation............................. F-4 Balance Sheet as of December 31, 1997 (unaudited)........... F-5 Statements of Operations for the years ended December 31, 1997 and 1996 (unaudited)................................. F-6 Statement of Changes in Partners' Deficit for years ended December 31, 1997 and 1996 (unaudited).................... F-7 Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited)................................. F-8 Notes to Financial Statements (unaudited)................... F-9
F-1 532 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) (IN THOUSANDS) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 53 Receivables and deposits.................................... 117 Restricted escrows.......................................... 138 Other assets................................................ 70 Investment Property: Land...................................................... $ 727 Building and related personal property.................... 7,224 ------- 7,951 Less Accumulated depreciation............................. (3,397) 4,554 ------- ------- Total Assets...................................... $ 4,932 ======= LIABILITIES AND PARTNERS' DEFICIT Accounts payable and accrued liabilities.................... $ 187 Notes payable............................................... 6,974 Partners' Deficit........................................... (2,229) ------- Total Liabilities and Partners' Deficit........... $ 4,932 =======
See accompanying note F-2 533 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1998 1997 ------ ------ Revenues: Rental income............................................. $1,007 $1,028 Other income.............................................. 82 43 ------ ------ Total Revenues.................................... 1,089 1,071 Expenses: Operating expenses........................................ 401 361 Depreciation expense...................................... 180 180 Interest expense.......................................... 474 497 Property tax expense...................................... 86 87 ------ ------ Total Expenses.................................... 1,141 1,125 ------ ------ Net Loss.......................................... $ (52) $ (54) ====== ======
See accompanying note F-3 534 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1998 1997 ----- -------- Operating Activities: Net loss.................................................. $(52) $ (54) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization.......................... 185 184 Changes in accounts: Receivables and deposits and other assets............ (53) 111 Accounts payable and accrued expenses................ (28) 76 ---- ------- Net cash provided by operating activities......... 52 317 ---- ------- Investing Activities: Property improvements and replacements.................... (33) (51) Net decrease in restricted escrows........................ (4) (96) ---- ------- Net cash used in investing activities............. (37) (147) Financing Activities: Payments on mortgage...................................... (38) (7,347) Proceeds from refinancing................................. -- 7,040 Loan costs................................................ -- (72) ---- ------- Net cash used in financing activities............. (38) (379) ---- ------- Net decrease in cash and cash equivalents......... (23) (209) Cash and cash equivalents at beginning of year............ 76 275 ---- ------- Cash and cash equivalents at end of period................ $ 53 $ 66 ==== =======
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Buccaneer Trace Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 535 BUCCANEER TRACE LIMITED PARTNERSHIP BALANCE SHEET (UNAUDITED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 76 Receivables and deposits.................................... 66 Restricted escrows.......................................... 134 Other assets................................................ 73 Investment property (Notes B and D) Land...................................................... $ 727 Buildings and related personal property................... 7,191 ------- 7,918 Less accumulated depreciation............................. (3,217) 4,701 ------- ------- $ 5,050 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities Accounts payable and other accrued liabilities............ $ 184 Tenant security deposit liability......................... 31 Mortgage note payable (Notes B and D)..................... 7,012 ------- 7,227 Partners' deficit General partners.......................................... $ (53) Limited partners (61 units issued and outstanding)........ (2,124) (2,177) ------- ------- $ 5,050 =======
See accompanying notes F-5 536 BUCCANEER TRACE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- --------- Revenues Rental income............................................. $ 1,393 $ 1,434 Other income.............................................. 65 75 ---------- -------- 1,458 1,509 Expenses Operating................................................. $ 596 $ 491 Depreciation.............................................. 240 230 Interest.................................................. 654 713 Property taxes............................................ 110 118 ---------- -------- 1,600 1,552 ---------- -------- Net loss.......................................... $ (142) $ (43) ========== ======== Net loss allocated to general partners (1%)................. (1) -- Net loss allocated to limited partners (99%)................ (141) (43) ---------- -------- $ (142) $ (43) ========== ======== Net loss per limited partnership unit............. $(2,311.48) $(704.92) ========== ========
See accompanying notes F-6 537 BUCCANEER TRACE LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT (UNAUDITED) (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------- Deficit at December 31, 1995................................ $(52) $(1,940) $(1,992) Net loss for the year ended December 31, 1996............. -- (43) (43) ---- ------- ------- Deficit at December 31, 1996................................ (52) (1,983) (2,035) Net loss for the year ended December 31, 1997............. (1) (141) (142) ---- ------- ------- Deficit at December 31, 1997................................ $(53) $(2,124) $(2,177) ==== ======= =======
See accompanying notes F-7 538 BUCCANEER TRACE LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------- 1997 1996 ------- ---- Cash flows from operating activities Net loss.................................................. $ (142) $(43) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 240 230 Amortization of loan costs............................. 7 -- Change in accounts: Receivables and deposits and other assets............ 156 (9) Accounts payable and other liabilities............... 158 3 ------- ---- Net cash provided by operating activities......... 419 181 Cash flows from investing activities Property improvements and replacements.................... (93) (76) Net deposits to restricted escrows........................ (134) -- ------- ---- Net cash used in investing activities............. (227) (76) Cash flows from financing activities Principal payments on mortgage note payable............... (7,359) (67) Proceeds from refinancing mortgage note payable........... 7,040 -- Payment of loan costs..................................... (72) -- ------- ---- Net cash used in financing activities............. (391) (67) ------- ---- Net increase (decrease) in cash and cash equivalents...... (199) 38 Cash and cash equivalents at beginning of year............ 275 237 ------- ---- Cash and cash equivalents at end of year.................. $ 76 $275 ======= ==== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 602 $713 ======= ====
See accompanying notes F-8 539 BUCCANEER TRACE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Buccaneer Trace Apartments in Savannah, Georgia. Sixty-one units of limited partnership interests, a managing general partner interest and a non-managing general partner interest were issued. The Partnership shall terminate on December 31, 2013, unless terminated sooner, pursuant to the agreement. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the years ended December 31, 1997 or 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Loan Costs Loan costs incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-9 540 BUCCANEER TRACE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Partnership Allocations Net income or losses are allocated 99% to the limited partners and 1% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the general and limited partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. NOTE B -- MORTGAGE NOTE PAYABLE Mortgage note payable consists of the following:
(IN THOUSANDS) -------------- Mortgage note payable to a lending institution bearing interest of 8.94% per annum. Monthly payments of principal and interest of approximately $56,000 are due through April 2004, with a balloon payment of approximately $6,644,000 due in May 2004................................ $7,012 ======
The Partnership's indebtedness matured in December 1996. In April 1997, the Partnership successfully refinanced the mortgage note payable, capitalizing loan costs of approximately $72,000 associated with the refinancing. Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998........................................................ $ 51 1999........................................................ 56 2000........................................................ 61 2001........................................................ 67 2002........................................................ 73 Thereafter.................................................. 6,704 ------ $7,012 ======
The apartment property is pledged as collateral on the mortgage notes. F-10 541 BUCCANEER TRACE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on its managing general partner and its affiliates for the administration and management of all partnership activities. Affiliates of Insignia Financial Group, Inc. ("Insignia"), who is an affiliate of the managing general partner of Buccaneer Trace Limited Partnership, provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates (in thousands):
1997 1996 ---- ---- Property management fees.................................... $73 $74 Reimbursement for investor services, asset management and partnership accounting.................................... 15 13
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ------------- ---------------- Buccaneer Trace Apts. Savannah, Georgia............................ $7,012 $727 $6,798 $393
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ------------- ------ ------------ -------- ----------- Buccaneer Trace.................... $727 $7,191 $7,918 $3,217 04/80 5-30
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands):
1997 1996 ------ ------ Investment Property Balance at beginning of year.............................. $7,825 $7,749 Property improvements..................................... 93 76 ------ ------ Balance at end of year............................ $7,918 $7,825 ====== ====== Accumulated Depreciation Balance at beginning of year.............................. $2,977 $2,747 Additions charged to expense.............................. 240 230 ------ ------ Balance at end of year............................ $3,217 $2,977 ====== ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 and 1996 is $7,918,000 and $7,825,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 and 1996 is $5,372,000 and $5,021,000, respectively. F-11 542 BUCCANEER TRACE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data):
1997 1996 ---------- ---------- Net loss as reported........................................ $ (142) $ (43) Deduct: Depreciation differences.................................. (110) (113) Other..................................................... 52 -- ---------- ---------- Federal taxable loss........................................ $ (200) $ (156) ========== ========== Federal taxable loss per limited partnership unit........... $(3,245.90) $(2,531.80) ========== ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities at December 31, 1997 (in thousands):
Net deficit as reported..................................... $(2,177) Accumulated depreciation.................................... (2,155) Other....................................................... 53 Syndication fees............................................ 371 ------- Net deficit -- tax basis.......................... $(3,908) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the general partner of the Partnership and the company that manages the Partnership. F-12 543 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed the merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 544 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 545 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 546 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 547 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 548 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 549 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 550 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 551 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 552 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 553 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 554 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 555 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 556 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 557 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 558 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 559 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 560 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 561 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 562 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 563 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 564 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 565 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 566 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 567 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 568 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 569 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 570
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 571 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 572
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 573 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 574 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 575 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 576
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 577 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 578 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 579 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 580
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 581 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 582 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 583 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 584 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 585 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 586 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 587 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 588 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 589 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 590 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 591 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 592 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 593 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Buccaneer Trace Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Buccaneer Trace Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $100 in cash, or 2.75 Common OP Units of the Purchaser, or 4.00 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report on period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 594 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 595 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 596 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 597
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 598
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 599
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 600
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 601 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 602 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Burgundy Court Associates, L.P. in exchange for your choice of: 3,437.50 of our 8.0% Class Two Partnership Preferred Units; 2,221.25 of our Partnership Common Units; or $85,934 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $43,313 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 603 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Burgundy Court Associates, L.P...................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25
PAGE ----- Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48
i 604
PAGE ----- Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Prorations................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69
PAGE ----- Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84 Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 605 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques - Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,615,000, less approximately $150,505 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 606 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 607 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2008 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages [one property] to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $6,875 per year on the number of Preferred OP Units, or distributions of $5,553.13 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 608 partnership's units. During 1998, your partnership paid cash distributions of $4,000 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 609 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,643,016 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 610 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002 and require balloon payments of $2,643,016. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 611 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $4,000 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $6,875 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $4,000 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $5,553.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 612 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 613 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 800,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership property..................... $ 7,615,000 Plus: Cash and cash equivalents............................. 300,451 Plus: Other partnership assets, net of security deposits.... 418,834 Less: Mortgage debt, including accrued interest............. (3,340,138) Less: Accounts payable and accrued expenses................. (18,355) Less: Other liabilities..................................... (64,372) ----------- Partnership valuation before taxes and certain costs........ 4,911,420 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (150,505) Less: Closing costs......................................... (190,375) ----------- Estimated net valuation of your partnership................. 4,570,540 Percentage of estimated net valuation allocated to holders of units.................................................. 94.01% ----------- Estimated net valuation of units............................ 4,296,707 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ $ 85,934 =========== Cash consideration per unit................................. $ 85,934 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $85,934 by the $25 liquidation preference of each Preferred OP Unit to get 3,437.50 Preferred OP Units per unit. S-9 614 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $85,934 by a price of $38.69 to get 2,221.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 85,934 Partnership Preferred Units................................. $ 85,934 Partnership Common Units.................................... $ 85,934 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 85,934 Estimated going concern value............................. $ 78,985 Alternative going concern value(1)........................ $ 79,855 Net book value (deficit).................................. $(10,301)
- --------------- (1) Assumes sale of properties when balloon payments are due instead of refinancing the mortgages. S-10 615 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Burgundy Court Associates, L.P. is a Delaware limited partnership which was formed on January 31, 1995 for the purpose of owning and operating an apartment property located in Cincinnati, Ohio, known as "Burgundy Court Apartments." Burgundy Court Apartments consists of 234 units and was built in 1969. Your partnership has no employees. As of December 31, 1998, there were 50 units of limited partnership interest issued and outstanding, which were held of record by 53 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,850,000 of limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $4,000 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,123,002, payable to Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of $112,855, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 616 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 3,437.50 of our Class Two Partnership Preferred Units; - 2,221.25 of our Partnership Common Units; or - $85,934 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 50 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 3,437.50 Preferred OP Units, 2,221.25 Common OP Units, or $85,934 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 617 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 618 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $85,934 in cash, 3,437.50 Preferred OP Units or 2,221.25 Common OP Units. Both your units and the S-14 619 OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $85,934. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a monthly fee equal to 1% of the gross collected income from your partnership's property as an administrative service fee from your partnership and may be reimbursed for expenses generated in that capacity. The property manager received management fees of $76,344 in 1996, $79,518 in 1997 and $82,495 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership's property. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,074,175 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 620 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 621
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 622 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 623
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 624 SUMMARY FINANCIAL INFORMATION OF BURGUNDY COURT ASSOCIATES, L.P. The summary financial information of Burgundy Court Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Burgundy Court Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is derived from the audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." BURGUNDY COURT ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... $1,252,000 $1,195,000 $1,616,000 $1,547,000 $1,475,000 $1,419,000 $1,389,000 Net Income.......................... 298,000 249,000 282,000 238,000 228,000 100,000 125,000 Net income per limited partnership unit.............................. 5,900.40 4,930.20 5,583.60 4,712.40 4,514.40 1,980.00 2,475.00 Distributions per limited partnership unit.................. 3,960.00 3,960.00 3,960.00 6,435.00 2,752.20 6,039.00 2,237.40 Distributions per limited partnership unit (which represent a return of capital).............. -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 571,000 $ 466,000 $ 500,000 $ 481,000 $ 520,000 $ 689,000 $ 785,000 Real Estate, Net of Accumulated Depreciation...................... 1,857,000 1,919,000 1,901,000 1,953,000 2,026,000 1,933,000 1,939,000 Total Assets........................ 2,869,000 2,848,000 2,887,000 2,879,000 3,009,000 3,052,000 3,247,000 Notes Payable....................... 3,132,000 3,208,000 3,197,000 3,268,000 3,333,000 3,392,000 3,446,000 Partners' Deficit................... (417,000) (547,000) (515,000) (598,000) (510,000) (598,000) (396,000) Total Distributions................. 200,000 200,000 200,000 325,000 140,000 305,000 113,000 Net increase (decrease) in cash and cash equivalents.................. 71,000 (15,000) 19,000 (39,000) (121,000) (98,000) 107,000 Net cash provided by operating activities........................ 455,000 361,000 453,000 484,000 396,000 499,000 445,000 Ratio of earnings to fixed charges........................... 2.43/1 2.17/1 1.95/1 1.79/1 1.74/1 1.33/1 1.41/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING BURGUNDY COURT PARTNERSHIP ASSOCIATES, L.P. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $5,553.13 $4,000 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $6,875.00 $4,000
S-20 625 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 626 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,615,000, less approximately $150,505 of deferred maintenance and investment. It is possible, that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 627 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 628 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 629 is equivalent to distributions of $6,875 per year on the number of Preferred OP Units, or distributions of $5,553 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $4,000 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 630 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,643,016 of balloon payments due on its mortgage debt in November, 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 631 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest, consisting of a 0% limited partnership interest and a .992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 632 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 633 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal balance of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $249,000 for the nine months ended September 30, 1997, to $298,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November, 2002 and require balloon payments totaling $2,643,016. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an S-29 634 offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require an affirmative vote by holders of a majority of the outstanding limited partnership units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 635 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $4,000 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $6,875 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $4,000 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $5,553.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 636 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 637 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $799,576 10.50% $7,615,010
- --------------- (1) The total net operating income is equal to total revenues of $1,595,828 less total expenses of $726,052 and recurring replacement costs of $70,200. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $4,570,540. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 94.01% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 800,000 Capitalization rate......................................... 10.50% ------------ Gross valuation of partnership properties................... $ 7,615,000 Plus: Cash and cash equivalents............................. 300,451 Plus: Other partnership assets, net of security deposits.... 418,834 Less: Mortgage debt, including accrued interest............. (3,340,138) Less: Accounts payable and accrued expenses................. (18,355) Less: Other liabilities..................................... (64,372) ------------ Partnership valuation before taxes and certain costs........ 4,911,420 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (150,505) Less: Closing costs......................................... (190,375) ------------ Estimated net valuation of your partnership................. 4,570,540 Percentage of estimated net valuation allocated to holders of units.................................................. 94.01% ------------ Estimated net valuation of units............................ 4,296,707 Total number of units............................. 50.0 ------------ Estimated valuation per unit................................ 85,934 ============ Cash consideration per unit................................. $ 85,934 ============
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $85,934 by the $25 liquidation preference of each Preferred OP Unit to get 3,437.50 Preferred OP Units per unit. S-33 638 - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $85,934 by a price of $38.69 to get 2,221.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $4,570,540 or .80% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $249,000 for the nine months ended September 30, 1997 to $298,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. S-34 639 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $85,934, based on a total estimated value of your partnership's property of $7,615,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $6,875 per year on the number of Preferred OP Units, or distributions of $5,553.13 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $4,000. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive S-35 640 if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 641 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 85,934 Partnership preferred units................................. $ 85,934(1) Partnership common units.................................... $ 85,934(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 85,934 Estimated going concern value............................. $ 78,985 Net book value (deficit).................................. $(10,301) Alternative going concern value........................... $ 79,855(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 642 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 18%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; (vi) cash reserves and (vii) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $78,985 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $79,855 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is only $10,301 and is substantially below the offer price. Net book deficit would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $87,659 per unit, going concern value of $80,360 per unit and liquidation value of $84,463 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- S-38 643 Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $1,725, $(5,574) and $(1,471). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 94.01% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 644 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
BURGUNDY COURT ---------- Total Revenues.............................................. $1,686,986 Operating Expenses.......................................... (765,765) Replacement Reserves -- Net................................. (188,521) Debt Service................................................ (354,180) Capital Expenditures........................................ (7,600) ---------- Net Cash Flow..................................... $ 370,920 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we S-40 645 deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the S-41 646 gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $150,505. Stanger observed that your partnership liquidation value of $4,570,540 was allocated 94.01% to the limited partners and was divided by the total units outstanding of 50 to provide the liquidation value per unit of $85,934. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $800,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $50,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 18%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of approximately 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 50 to achieve management's estimate of going concern value of $78,985 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $85,934 per unit is equal to management's estimate of liquidation value, and reflects a 8.8% premium to management's estimate of going concern value of $78,985. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption S-42 647 occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value on the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 18% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 18% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, 13% (as described above), plus 500 basis points reflecting the additional risk associated with mortgage debt equal to more than 40% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimates of net asset value, going concern value and liquidation value per unit were $87,659, $80,360, and $84,463 representing premiums (discounts) to the offer price of 2.0%, (6.5%) and (1.7%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently S-43 648 available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 649 YOUR PARTNERSHIP GENERAL Burgundy Court Associates, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 53 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 31, 1985 for the purpose of owning an apartment property located in Cincinnati,Ohio, known as "Burgundy Court Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1960 and consists of 234 apartment units. There are 32 one-bedroom apartments, 140 two-bedroom apartments and 62 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 94.47% in 1998, 94.44% in 1997 and 94.44% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $150,505 and are intended to be paid for out of cash flow or borrowings. Major renovation items include electrical, sidewalks, exterior lighting, landscape and irrigation, and drainage. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $549 $523 $499 $479 $470
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $124,349 of $2,285,710 of assessed valuation with a current yearly tax rate of 5.44%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 5.71% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2015 unless earlier dissolved. Your S-45 650 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 95% and $562, respectively, at December 31, 1998, compared to 94% and $549, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because of improving market conditions. In addition, the general partner noted that it expects to spend approximately $150,505 for capital improvements at the property in 1999 to repair and improve the property's electrical, sidewalks, exterior lighting, landscape and irrigation and cleaning. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,123,002, payable to Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your S-46 651 partnership also has a second mortgage note outstanding of $112,855 on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,850,000 of limited partnership units in 1985 for $30,328 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership is not liable to your partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited partnership. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest." The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner, against and from any personal loss, liability (including attorneys' fee) or damage incurred by them as a result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 652 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $30,328.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 2,273 1,136 0 28,409 1994.................................. 6,061 3,030 0 75,758 1995.................................. 2,800 1,400 0 35,000 1996.................................. 6,500 3,250 0 81,250 1997.................................. 4,000 2,000 0 50,000 1998.................................. 4,000 2,000 0 50,000 ------- ------- -- -------- Total....................... 25,634 12,816 0 320,417
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest in your partnership as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 653 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1995........................................................ $44,298 1996........................................................ $42,194 1997........................................................ $42,463 1998........................................................ $30,398
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $72,215 1996........................................................ $76,344 1997........................................................ $79,518 1998........................................................ $82,945
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 654 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
BURGUNDY COURT ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 571,000 $ 466,000 $ 500,000 $ 481,000 $ 567,000 $ 689,000 $ 785,000 Land & Building............... 5,624,000 5,485,000 5,525,000 5,386,000 5,279,000 4,972,000 4,681,000 Accumulated Depreciation...... (3,767,000) (3,576,000) (3,624,000) (3,433,000) (3,263,000) (3,039,000) (2,742,000) Other Assets.................. 441,000 463,000 486,000 445,000 416,000 430,000 523,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 2,869,000 $ 2,848,000 $ 2,887,000 $ 2,879,000 $ 3,009,000 $ 3,052,000 $ 3,247,000 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 3,132,000 $ 3,208,000 $ 3,197,000 $ 3,268,000 $ 3,333,000 $ 3,392,000 $ 3,446,000 Other Liabilities............. 154,000 187,000 205,000 209,000 186,000 269,000 195,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 3,286,000 $ 3,395,000 $ 3,402,000 $ 3,477,000 $ 3,519,000 $ 3,651,000 $ 3,641,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit...... $ (417,000) $ (547,000) $ (515,000) $ (598,000) $ (510,000) $ (599,000) $ (396,000) =========== =========== =========== =========== =========== =========== ===========
BURGUNDY COURT ASSOCIATES, L.P. ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,182,000 $1,141,000 $1,542,000 $1,469,000 $1,401,000 $1,346,000 $1,326,000 Other Income................... 70,000 54,000 74,000 78,000 74,000 73,000 63,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $1,252,000 $1,195,000 $1,616,000 $1,547,000 $1,475,000 $1,419,000 $1,389,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 465,000 $ 467,000 $ 670,000 $ 663,000 $ 572,000 $ 565,000 $ 527,000 General & Administrative....... 41,000 35,000 52,000 50,000 53,000 55,000 57,000 Depreciation................... 143,000 143,000 191,000 181,000 214,000 297,000 275,000 Interest Expense............... 209,000 212,000 297,000 303,000 308,000 299,000 305,000 Property Taxes................. 96,000 89,000 124,000 112,000 100,000 103,000 100,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $ 954,000 $ 946,000 $1,334,000 $1,309,000 $1,247,000 $1,319,000 $1,264,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income..................... $ 298,000 $ 249,000 $ 282,000 $ 238,000 $ 228,000 $ 100,000 $ 125,000 ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 5,900.40 $ 4,930.20 $ 5,583.60 $ 4,712.40 $ 4,514.40 $ 1,980.00 $ 2,475.00 ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ 3,960.00 $ 3,960.00 $ 3,960.00 $ 6,435.00 $ 2,772.00 $ 6,000.00 $ 2,237.40 ========== ========== ========== ========== ========== ========== ==========
S-50 655 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $298,000 for the nine months ended September 30, 1998, compared to $249,000 for the nine months ended September 30, 1997. The increase in net income of $49,000 was primarily the result of an increase in revenues, partially offset by an increase in general and administrative and property tax expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,252,000 for the nine months ended September 30, 1998, compared to $1,195,000 for the nine months ended September 30, 1997, an increase of $57,000, or 4.8%. The Partnership increased rental rates by an average of 4.5%, while occupancy decreased 0.5% to 95%. The increase in Other Income of $16,000 was due primarily to higher interest income, resulting from increases in the average cash balances on hand. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $465,000 for the nine months ended September 30, 1998, compared to $467,000 for the nine months ended September 30, 1997, a decrease of $2,000. Partnership Property management expenses totaled $62,000 for the nine months ended September 30, 1998, compared to $59,000 for the nine months ended September 30, 1997, an increase of $3,000. This increase is primarily the result of the increase in rental revenues, as management fees are calculated based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $6,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher partnership administrative expenses and asset management fees. PROPERTY TAX EXPENSE Property tax expense totaled $96,000 for the nine months ended September 30, 1998, compared to $89,000 for the nine months ended September 30, 1997, an increase of $7,000. This increase is due to a estimated increase in the property tax assessment for 1998. BURGUNDY COURT Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $282,771 for the year ended December 31, 1997, compared to $237,063 for the year ended December 31, 1996. The increase in net income of $45,708, or 19.3% was S-51 656 primarily the result of increased revenues due to rental rate increases during 1997. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,616,282 for the year ended December 31, 1997, compared to $1,546,366 for the year ended December 31, 1996, an increase of $69,916, or 4.5%. The Partnership increased rental rates by an average of 5% which was partially offset by a decrease in occupancy of 1.3% to 96%. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $669,873 for the year ended December 31, 1997, compared to $663,184 for the year ended December 31, 1996, an increase of $6,689 or 1.0%. Management expenses totaled $79,518 for the year ended December 31, 1997, compared to $76,344 for the year ended December 31, 1996, an increase of $3,174, or 4.2% due to increased rental revenue as management fees are based on a percentage of revenue. Advertising and rental expenses increased by $5,000, mainly attributable to a $1,300 increase in resident relations gatherings, a $1,600 increase in newspaper advertising and a $1,300 increase in concessions. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $52,232 for the year ended December 31, 1997 compared to $50,169 for the year ended December 31, 1996, an increase of $2,063 or 4.1%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $292,624 for the year ended December 31, 1997, compared to $302,991 for the year ended December 31, 1996, a decrease of $6,367, or 2.1%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $237,063 for the year ended December 31, 1996, compared to $227,738 for the year ended December 31, 1995, an increase in net income of $9,325, or 4.1%. REVENUES Rental and other property revenues from the partnership's property totaled $1,546,366 for the year ended December 31, 1996, compared to $1,475,376 for the year ended December 31, 1995, an increase of $70,990, or 4.8%. The partnership increased rental rates by an average of 4.8% while occupancy rates remained consistent at 95%. Additional increases in other income of $3,509 to $77,679 was due to higher cleaning and damage fees, lease cancellation fees and pet fees. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $663,184 for the year ended December 31, 1996, compared to $572,345 for the year ended December 31, 1995, an increase of $90,839 or 15.9%. The increase is due primarily to an exterior property improvement maintenance project during 1996. Management expenses totaled $76,344 for the year ended December 31, 1996, compared to $72,215 for the year ended December 31, 1995, for the year ended December 31, 1995, an S-52 657 increase of $4,129, or 5.7%. The increase is due primarily to the increased revenue considering management fees are based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $50,169 for the year ended December 31, 1996 compared to $53,039 for the year ended December 31, 1995, a decrease of $2,870 or 5.4%. The decrease is primarily due to audit fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $302,991 for the year ended December 31, 1996, compared to $308,410 for the year ended December 31, 1995, a decrease of $5,419, or 1.8%. This decrease is due to a lower outstanding balance on mortgage indebtedness due to principal payments made during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $571,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, was $3,132,000. The mortgages require monthly payments of approximately $28,800 until November 2002, at which time a balloon payment of approximately $2,872,740 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 658 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 50 units of your partnership (up to 12 units) for consideration per unit of (i) 3437.50 Preferred OP Units, (ii) 2,221.25 Common OP Units, or (iii) $85,934 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 659 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 660 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 661 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 662 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 663 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 664 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 665 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 666 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 667 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 668 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 669 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 670 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 671 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 672 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 673 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 674 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 675 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Distributable Cash (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2008. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating develop, operate, lease, manage and hold for Partnership is to conduct any business that investment and the production of income your may be lawfully conducted by a limited partnership's property. Subject to partnership organized pursuant to the restrictions contained in your partnership's Delaware Revised Uniform Limited Part- agreement of limited partnership, your nership Act (as amended from time to time, partnership may perform all acts necessary or any successor to such statute) (the or appropriate in connection therewith and "Delaware Limited Partnership Act"), reasonably related thereto, including provided that such business is to be acquiring or borrowing money and creating conducted in a manner that permits AIMCO to liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 676 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 50 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner, in connection with the The AIMCO Operating Partnership may lend or management of your partnership, are contribute funds or other assets to its authorized to acquire goods from or utilize subsidiaries or other persons in which it the services of affiliates; pro- has an equity investment,
S-72 677 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP vided that the terms and conditions of such and such persons may borrow funds from the dealing are as favorable as could reasonably AIMCO Operating Partnership, on terms and be obtained from third parties offering conditions established in the sole and similar goods and services of similar absolute discretion of the general partner. quality and reliability. Your partnership To the extent consistent with the business may borrow money on commercially reasonable purpose of the AIMCO Operating Partnership terms from one or more of the partners and the permitted activities of the general without notification to any of the other partner, the AIMCO Operating Partnership may partners and all or a portion of your transfer assets to joint ventures, limited partnership's property may be conveyed as liability companies, partnerships, security for any such indebtedness; pro- corporations, business trusts or other vided, however, that loans from limited business entities in which it is or thereby partners may be made only to the extent becomes a participant upon such terms and allowed by applicable law. The time and subject to such conditions consistent with amount of the repayment on any loan from a the AIMCO Operating Partnership Agreement partner will be in the sole discretion of and applicable law as the general partner, the general partner but the principal and in its sole and absolute discretion, interest will be paid in full prior to any believes to be advisable. Except as distribution of funds to the partners unless expressly permitted by the AIMCO Operating such loans contain a specific provision to Partnership Agreement, neither the general the contrary and such lending partner will partner nor any of its affiliates may sell, be considered an unrelated creditor with transfer or convey any property to the AIMCO respect to such loan to the extent allowed Operating Partnership, directly or by applicable law. Loans from the general indirectly, except pursuant to transactions partner and their affiliates will accrue that are determined by the general partner interest at the greater of 2 1/2% over the in good faith to be fair and reasonable. prime interest rate charged by the Third National Bank in Nashville, or the actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and as security contains no restrictions on borrowings, and therefor to mortgage all or any part of the the general partner has full power and real property your partnership. However, any authority to borrow money on behalf of the amendment to your partnership wraparound AIMCO Operating Partnership. The AIMCO note (as defined in your partnership's Operating Partnership has credit agreements agreement of limited partnership) requires that restrict, among other things, its the consent of holders of 51% of the ability to incur indebtedness. outstanding units.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all limited partners at the Unitholder's own expense, to obtain a principal office of your partnership at all current list of the name and last known reasonable times. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth in your All management powers over the business and partnership's agreement of limited affairs of the AIMCO Operating Partnership partnership and under applicable law, the are vested in AIMCO-GP, Inc., which is the general partner of your partnership has the general partner. No OP Unitholder has any power on behalf of your partnership to do right to participate in or exercise control all things set forth in your partnership's or management power over the business and agreement of limited partnership. The affairs of the AIMCO Operating Partner- general partner
S-73 678 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP represent your partnership in all ship. The OP Unitholders have the right to transactions with third parties. No limited vote on certain matters described under partner has any right or power to take part "Comparison of Your Units and AIMCO OP in any way in the management of your Units -- Voting Rights" below. The general partnership business except as may be partner may not be removed by the OP expressly provided in your partnership's Unitholders with or without cause. agreement of limited partnership or by applicable statutes. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any other partner for any to the AIMCO Operating Partnership for mistakes or errors in judgment or for any losses sustained, liabilities incurred or act or omission believed by the general benefits not derived as a result of errors partner in good faith to be within the scope in judgment or mistakes of fact or law of of authority conferred upon it by your any act or omission if the general partner partnership's agreement of limited acted in good faith. The AIMCO Operating partnership. In addition, your partnership Partnership Agreement provides for will, to the extent permitted by law, indemnification of AIMCO, or any director or indemnify and save harmless the general officer of AIMCO (in its capacity as the partner, against and from any personal loss, previous general partner of the AIMCO liability (including attorneys' fee) or Operating Partnership), the general partner, damage incurred by them as a result of any any officer or director of general partner act or omission in its capacity as general or the AIMCO Operating Partnership and such partner unless such loss, liability or other persons as the general partner may damage results from gross negligence or designate from and against all losses, willful misconduct of the general partners. claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other
S-74 679 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause upon the business and affairs of the AIMCO a vote of the limited partners owning 51% of Operating Partnership. The general partner the outstanding units. A general partner may may not be removed as general partner of the not transfer, assign, sell, withdraw or AIMCO Operating Partnership by the OP otherwise dispose of its interest unless it Unitholders with or without cause. Under the obtains the prior written consent of those AIMCO Operating Partnership Agreement, the persons owning 51% of the units. Such general partner may, in its sole discretion, consent is also necessary for the approval prevent a transferee of an OP Unit from of a new general partner. A limited partner becoming a substituted limited partner may not transfer his interests without the pursuant to the AIMCO Operating Partnership written consent of the general partner which Agreement. The general partner may exercise may be withheld at the sole discretion of this right of approval to deter, delay or the general partner. hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the limited set forth in the AIMCO Operating Partnership partner holding 51% of the then outstanding Agreement, whereby the general partner may, units; provided that any amendment which without the consent of the OP Unitholders, affects a partner's interest in the capital amend the AIMCO Operating Partnership profits or Distributable Cash of your Agreement, amendments to the AIMCO Operating partnership may be altered only with such Partnership Agreement require the consent of partner's consent. On its own motion or upon the holders of a majority of the outstanding receipt of a written request for the Common OP Units, excluding AIMCO and certain adoption of an amendment executed by limited other limited exclusions (a "Majority in partners owning at least 10% of the units
S-75 680 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP then outstanding, the general partner will Interest"). Amendments to the AIMCO submit the proposed amendment to the limited Operating Partnership Agreement may be partner for their approval. For the purposes proposed by the general partner or by of obtaining the consent of the limited holders of a Majority in Interest. Following partners, the general partner may require such proposal, the general partner will responses within a specified time, which may submit any proposed amendment to the OP not be less than thirty days, and failure to Unitholders. The general partner will seek respond within such time will constitute a the written consent of the OP Unitholders on vote which is consistent with the general the proposed amendment or will call a partner's recommendation with respect to meeting to vote thereon. See "Description of such proposal. OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives a monthly fee equal to 1% of the its capacity as general partner of the AIMCO gross collected income from your Operating Partnership. In addition, the partnership's property as an administrative AIMCO Operating Partnership is responsible service fee. Moreover, the general partner for all expenses incurred relating to the or certain affiliates may be entitled to AIMCO Operating Partnership's ownership of compensation for additional services its assets and the operation of the AIMCO rendered. Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the liability of each gross negligence, no OP Unitholder has of the limited partners for its share of the personal liability for the AIMCO Operating losses or debts of your partnership is Partnership's debts and obligations, and limited to the total capital contributions liability of the OP Unitholders for the of such limited partners (subject to the AIMCO Operating Partnership's debts and terms and conditions pursuant to which such obligations is generally limited to the capital contribution is to be paid) plus, to amount of their investment in the AIMCO the extent that such limited partner Operating Partnership. However, the rightfully received the return of such limitations on the liability of limited capital contribution, any sum, not in excess partners for the obligations of a limited of such return, necessary to discharge partnership have not been clearly liabilities of your partnership to all established in some states. If it were creditors who extended credit before such determined that the AIMCO Operating Part- return; provided that the liability with nership had been conducting business in any respect to rightfully returned capital state without compliance with the applicable contributions is limited to one year from limited partnership statute, or that the the date of such return. right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-76 681 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties The general partner must act as fiduciaries Unless otherwise provided for in the with respect to the assets and business of relevant partnership agreement, Delaware law your partnership. Under your partnership's generally requires a general partner of a agreement of limited partnership, the Delaware limited partnership to adhere to general partner must devote such of its time fiduciary duty standards under which it owes and that of its employees to your its limited partners the highest duties of partnership business as may be reasonably good faith, fairness and loyalty and which necessary to carry on and conduct your generally prohibit such general partner from partnership's business. The general partner taking any action or engaging in any must use its best effort to do all other transaction as to which it has a conflict of things and perform such other duties as may interest. The AIMCO Operating Partnership be reasonably necessary to the successful Agreement expressly authorizes the general operation of your partnership. partner to enter into, on behalf of the AIMCO Operating Partnership, a right of In general, your partnership's agreement of first opportunity arrangement and other limited partnership and the AIMCO Operating conflict avoidance agreements with various Partnership Agreement have limitations on affiliates of the AIMCO Operating the liability of the general partner but Partnership and the general partner, on such such limitations differ and provide more terms as the general partner, in its sole protection for the general partner of the and absolute discretion, believes are AIMCO Operating Partnership. advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-77 682 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital
S-78 683 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning 51% of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agree- Units. See "Description of Operating Partnership ment of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your part- outstanding, in addition to proceedings, an assignment nership; amend your any other vote or consent of for the benefit of creditors partnership Wraparound Note partners required by law or and certain transfers by the (as defined in your by the AIMCO Operating general partner of its partnership's agreement of Partnership Agreement, the interest in the AIMCO limited partnership); remove affirmative vote or consent Operating Partnership or the a general partner for cause; of holders of at least 50% admission of a successor approve the retirement of a of the outstanding Preferred general partner. general partner and the OP Units will be necessary election of a successor for effecting any amendment Under the AIMCO Operating general partner; and approve of any of the provisions of Partnership Agreement, the or disapprove the sale of the Partnership Unit general partner has the your partnership's property. Designation of the Preferred power to effect the OP Units that materially and acquisition, sale, transfer, A general partner may cause adversely affects the rights exchange or other the dissolution of your or preferences of the disposition of any assets of partnership by retiring holders of the Preferred OP the AIMCO Operating unless, within ninety days Units. The creation or Partnership (including, but of such occurrence, the issuance of any class or not limited to, the exercise limited partners owning 51% series of partnership units, or grant of any conversion, of the then outstanding including, without option, privilege or units vote to continue the limitation, any partner- subscription right or any business. If there are no ship units that may have other right available in remaining general partners, rights senior or superior to connection with any assets all of the limited partners the Preferred OP Units, at any time held by the must vote to reform your shall not be deemed to AIMCO Operating Partnership) partnership and by a vote of materially adversely affect or the merger, the holders of 51% of the the rights or preferences of consolidation, outstanding units, elect one the holders of Preferred OP reorganization or other or more successor general Units. With respect to the combination of the AIMCO partners to continue the exercise of the above Operating Partnership with business of your described voting rights, or into another entity, all partnership. In the event of each Preferred OP Units without the consent of the such reformation, your shall have one (1) vote per OP Unitholders. partnership will dissolve Preferred OP Unit. and all of the assets and The general partner may liabilities of your cause the dissolution of the partnership will be AIMCO Operating Partnership contributed to a new by an "event of withdrawal," partnership which will be as defined in the Delaware formed and all parties to Limited Partnership Act your partnership's agreement (including, without limi- of limited partnership will tation, bankruptcy), unless, become parties to such new partnership. In general, you have greater vot-
S-79 684 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ing rights in your within 90 days after the partnership than you will withdrawal, holders of a have as an OP Unitholder. OP "majority in interest," as Unitholders can not remove defined in the Delaware the general partner of the Limited Partnership Act, AIMCO Operating Partnership. agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Distributable at the rate of $0.50 per or such portion as the Cash will be distributed Preferred OP Unit; provided, general partner may in its quarterly by the general however, that at any time sole and absolute discretion partners, on or about and from time to time on or determine, of Available Cash January 15, April 15, July after the fifth anniversary (as defined in the AIMCO 15 and October 15. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. No limited applicable to U.S. Treasury tablished by the general partner has any priority notes with a maturity of partner with respect to such over any other limited five years, and (ii) the quarter, in accordance with partner as to distri- annual dividend rate on the their respective interests butions nor does any limited most recently issued AIMCO in the AIMCO Operating partner have the right to non-convertible preferred Partnership on such record demand that distributions to stock which ranks on a date. Holders of any other it be in any form other than parity with its Class H Preferred OP Units issued in cash. Cumulative Preferred Stock. the future may have priority Such distributions will be over the cumulative from the date of origi-
S-80 685 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS nal issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) the as- securities exchange. The transferability of the
S-81 686
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS signee agrees to be bound by Preferred OP Units are OP Units. Until the the terms of your subject to restrictions on expiration of one year from partnership's agreement of transfer as set forth in the the date on which an OP limited partnership and AIMCO Operating Partnership Unitholder acquired OP represents that he is over Agreement. Units, subject to certain 18 years of age, is a exceptions, such OP citizen and resident of the Pursuant to the AIMCO Unitholder may not transfer United States, has Operating Partnership all or any portion of its OP sufficient financial Agreement, until the Units to any transferee resources to maintain the expiration of one year from without the consent of the interest and is acquiring the date on which a holder general partner, which the interest for investment of Preferred OP Units consent may be withheld in and not for distribution, acquired Preferred OP Units, its sole and absolute (2) a written assignment has subject to certain discretion. After the been duly executed and exceptions, such holder of expiration of one year, such acknowledged by the assignor Preferred OP Units may not OP Unitholder has the right and assignee and has been transfer all or any portion to transfer all or any delivered to the general of its Preferred OP Units to portion of its OP Units to partner, (3) the written any transferee without the any person, subject to the approval of the general consent of the general satisfaction of certain con- partner which may be partner, which consent may ditions specified in the withheld in the sole and be withheld in its sole and AIMCO Operating Partnership absolute discretion of the absolute discretion. After Agreement, including the general partner has been the expiration of one year, general partner's right of granted and (4) the assignor such holders of Preferred OP first refusal. See and assignee have complied Units has the right to "Description of OP Units -- with such other conditions transfer all or any portion Transfers and Withdrawals" as set forth in your of its Preferred OP Units to in the accompanying partnership's agreement of any person, subject to the Prospectus. limited partnership. The satisfaction of certain general partner will conditions specified in the After the first anniversary withhold its consent if the AIMCO Operating Partner- of becoming a holder of transferee is not authorized ship Agreement, including Common OP Units, an OP to acquire the units or does the general partner's right Unitholder has the right, not have sufficient of first refusal. subject to the terms and financial resources, the conditions of the AIMCO transfer would result in After a one-year holding Operating Partnership your partnership being taxed period, a holder may redeem Agreement, to require the as a corporation, the trans- Preferred OP Units and AIMCO Operating Partnership fer would violate Federal or receive in exchange to redeem all or a portion state securities laws or the therefor, at the AIMCO Oper- of the Common OP Units held transfer would cause a ating Partnership's option, by such party in exchange termination of your (i) subject to the terms of for a cash amount based on partnership for tax any Senior Units (as defined the value of shares of Class purposes. below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to aggregate amount of acquire some or all of the dividends tendered Common OP Units in
S-82 687 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 688 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 689 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 690 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 691 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 692 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 693 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 694 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 695 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 696 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 697 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a monthly fee equal to 1% of the gross collected income from your partnership's property as an administrative service fee from your partnership and may be reimbursed for expenses generated in that capacity. The property manager received management fees of $76,344 in 1996, $79,518 in 1997 and $82,945 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 698 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,074,175 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 699 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Burgundy Court, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 700 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Balance Sheets as of December 31, 1997 and 1996............. F-7 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-8 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-14 Balance Sheets as of December 31, 1996 and 1995............. F-15 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-16 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-17 Notes to Financial Statements............................... F-18
F-1 701 BURGUNDY COURT, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $571,000 Receivables and deposits.................................... 118,000 Restricted escrows.......................................... 258,000 Other assets................................................ 65,000 Investment property Land...................................................... $330,000 Building and related personal property.................... 5,294,000 ----------- 5,624,000 ----------- Less: Accumulated depreciation............................ (3,767,000) 1,857,000 ----------- ---------- Total assets...................................... $2,869,000 ========== LIABILITIES AND PARTNERS' DEFICIT Accrued liabilities......................................... $21,000 Property taxes payable...................................... 96,000 Tenant security deposits.................................... 37,000 Notes payable............................................... 3,132,000 Partners' deficit................................. (417,000) ---------- Total liabilities and partners' deficit........... $2,869,000 ---------- ----------
See accompanying notes to financial statements. F-2 702 BURGUNDY COURT, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,182,000 $1,141,000 Other Income.............................................. 70,000 54,000 ---------- ---------- Total Revenues.................................... 1,252,000 1,195,000 Expenses: Operating Expenses........................................ 465,000 467,000 General and Administrative Expenses....................... 41,000 35,000 Depreciation Expense...................................... 143,000 143,000 Interest Expense.......................................... 209,000 212,000 Property Tax Expense...................................... 96,000 89,000 ---------- ---------- Total Expenses.................................... 954,000 946,000 Net Income........................................ $ 298,000 $ 249,000 ========== ==========
See accompanying notes to financial statements. F-3 703 BURGUNDY COURT, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 --------- --------- Operating Activities: Net Income................................................ $ 298,000 $ 249,000 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation and Amortization.......................... 163,000 162,000 Changes in accounts: Receivables and deposits and other assets............ 47,000 (28,000) Accounts Payable and accrued expenses................ (52,000) (22,000) --------- --------- Net cash provided by (used in) operating activities...................................... 456,000 361,000 --------- --------- Investing Activities: Property improvements and replacements.................... (99,000) (109,000) Net (increase)/decrease in restricted escrows............. (9,000) 5,000 --------- --------- Net cash provided by (used in) investing activities...................................... (108,000) (104,000) --------- --------- Financing Activities: Payments on mortgage...................................... (77,000) (72,000) Partners' Distributions................................... (200,000) (200,000) --------- --------- Net cash provided by (used in) financing activities...................................... (277,000) (272,000) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 71,000 (16,000) Cash and cash equivalents at beginning of period............ 500,000 481,000 --------- --------- Cash and cash equivalents at end of period.................. $ 571,000 $ 465,000 ========= =========
See accompanying notes to financial statements. F-4 704 BURGUNDY COURT, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Burgundy Court Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 705 INDEPENDENT AUDITORS' REPORT General Partners Burgundy Court, Limited: We have audited the accompanying balance sheets of Burgundy Court, Limited as of December 31, 1997 and 1996 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, a well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burgundy Court, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 20, 1998 F-6 706 BURGUNDY COURT, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 500,457 $ 481,291 Receivables and deposits.................................... 161,263 113,559 Restricted escrows (Note B)................................. 249,128 251,130 Other assets................................................ 75,972 80,721 Investment properties (Note C): Land...................................................... 330,171 330,171 Buildings and related personal property................... 5,194,898 5,055,759 ----------- ----------- 5,525,069 5,385,930 Less accumulated depreciation............................. (3,623,942) (3,433,409) ----------- ----------- 1,901,127 1,952,521 ----------- ----------- $ 2,887,947 $ 2,879,222 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18,347 $ 19,315 Tenant security deposit liabilities....................... 39,480 41,177 Accrued taxes............................................. 122,506 111,431 Other liabilities......................................... 25,683 37,395 Mortgage notes payable (Note C)........................... 3,197,062 3,267,806 Partners' deficit........................................... (515,131) (597,902) ----------- ----------- $ 2,887,947 $ 2,879,222 =========== ===========
See Accompanying Notes to Financial Statements F-7 707 BURGUNDY COURT, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Revenues: Rental income............................................. $1,541,890 $1,468,687 Other income.............................................. 74,392 77,679 ---------- ---------- Total revenues......................................... 1,616,282 1,546,366 ---------- ---------- Expenses: Operating (Note D)........................................ 669,873 663,184 General and administrative (Note D)....................... 52,232 50,169 Depreciation.............................................. 190,533 180,705 Interest.................................................. 296,624 302,991 Property taxes............................................ 124,249 112,254 ---------- ---------- Total expenses......................................... 1,333,511 1,309,303 ---------- ---------- Net income................................................ 282,771 237,063 Distributions to partners................................... (200,000) (325,000) Partners' deficit at beginning of year...................... (597,902) (509,965) ---------- ---------- Partners' deficit at end of year............................ $ (515,131) $ (597,902) ========== ==========
See Accompanying Notes to Financial Statements F-8 708 BURGUNDY COURT, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 282,771 $ 237,063 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................................... 190,533 180,705 Amortization of discounts and loan costs............. 38,788 38,126 Change in accounts: Receivables and deposits............................. (47,704) 4,941 Other assets......................................... (8,441) -- Accounts payable..................................... (968) 13,516 Tenant security deposit liabilities.................. (1,697) (5,175) Accrued taxes........................................ 11,075 12,495 Other liabilities.................................... (11,712) _2,117 --------- --------- Net cash provided by operating activities......... 452,645 483,788 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (139,139) (107,288) Deposits to restricted escrows............................ (10,240) (10,396) Receipts from restricted escrows.......................... 12,242 9,145 --------- --------- Net cash used in investing activities............. (137,137) (108,539) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (96,342) (89,312) Distributions to partners................................. (200,000) (325,000) --------- --------- Net cash used in financing activities............. (296,342) (414,312) --------- --------- Net increase (decrease) in cash and cash equivalents........ 19,166 (39,063) Cash and cash equivalents at beginning of year.............. 481,291 520,354 --------- --------- Cash and cash equivalents at end of year.................... $ 500,457 $ 481,291 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 257,836 $ 264,865 ========= =========
See Accompanying Notes to Financial Statements F-9 709 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Burgundy Court, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 31, 1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy Court Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $67,530 and $80,721, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-10 710 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1997 and excess funds were returned for property operations in 1997. .................................................... $ -- $ 12,242 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 249,128 238,888 -------- -------- $249,128 $251,130 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $28,800, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,227,283 $3,323,625 Second mortgage note payable in interest only monthly installments of $715, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 112,855 112,855 ---------- ---------- Principal balance at year end............................... 3,340,138 3,436,480 Less unamortized discount................................... (143,076) (168,674) ---------- ---------- $3,197,062 $3,267,806 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998................................................... $ 103,924 1999................................................... 112,103 2000................................................... 120,927 2001................................................... 130,444 2002................................................... 2,872,740 ---------- $3,340,138 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the F-11 711 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $79,518 $76,344 Partnership administration fee........................... $14,501 $15,268 Reimbursement for services of affiliates................. $27,124 $26,926 Construction services reimbursement...................... $ 838 $ --
F-12 712 BURGUNDY COURT, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-13 713 INDEPENDENT AUDITORS' REPORT General Partners Burgundy Court, Limited: We have audited the accompanying balance sheets of Burgundy Court, Limited as of December 31, 1996 and 1995 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burgundy Court, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 25, 1997 F-14 714 BURGUNDY COURT, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 481,291 $ 520,354 Restricted -- tenant security deposits.................... 41,177 46,352 Accounts receivable......................................... 2,333 227 Escrow for taxes............................................ 70,049 71,921 Restricted escrows (Note B)................................. 251,130 249,879 Other assets................................................ 80,721 94,366 Investment properties (Note C): Land...................................................... 330,171 330,171 Buildings and related personal property................... 5,055,759 4,948,471 ----------- ----------- 5,385,930 5,278,642 Less accumulated depreciation............................. (3,433,409) (3,252,704) ----------- ----------- 1,952,521 2,025,938 ----------- ----------- $ 2,879,222 $ 3,009,037 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 19,315 $ 5,799 Tenant security deposits.................................. 41,177 46,352 Accrued taxes............................................. 111,431 98,936 Other liabilities......................................... 37,395 35,278 Mortgage notes payable (Note C)........................... 3,267,806 3,332,637 Partners' deficit........................................... (597,902) (509,965) ----------- ----------- $ 2,879,222 $ 3,009,037 =========== ===========
See Accompanying Notes to Financial Statements F-15 715 BURGUNDY COURT, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Revenues: Rental income............................................. $1,468,687 $1,401,205 Other income.............................................. 77,679 74,171 ---------- ---------- Total revenues......................................... 1,546,366 1,475,376 ---------- ---------- Expenses: Operating (Note D)........................................ 453,897 421,913 General and administrative (Note D)....................... 50,169 53,039 Maintenance............................................... 209,287 150,432 Depreciation.............................................. 180,705 214,023 Interest.................................................. 302,991 308,410 Property taxes............................................ 112,254 99,821 ---------- ---------- Total expenses......................................... 1,309,303 1,247,638 ---------- ---------- Net income.................................................. 237,063 227,738 Distributions to partners................................... (325,000) (140,000) Partners' deficit at beginning of year...................... (509,965) (597,703) ---------- ---------- Partners' deficit at end of year............................ $ (597,902) $ (509,965) ========== ==========
See Accompanying Notes to Financial Statements F-16 716 BURGUNDY COURT, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 237,063 $ 227,738 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 180,705 214,023 Amortization of discounts and loan costs............... 38,126 37,030 Change in accounts: Restricted cash...................................... 5,175 2,236 Accounts receivable.................................. (2,106) (227) Escrow for taxes..................................... 1,872 (12,190) Accounts payable..................................... 13,516 (8,755) Tenant security deposit liabilities.................. (5,175) (538) Accrued taxes........................................ 12,495 (3,095) Other liabilities.................................... 2,117 (59,897) --------- --------- Net cash provided by operating activities......... 483,788 396,325 --------- --------- Cash flows from investing activities: Property investments and replacements..................... (107,288) (306,206) Deposits to restricted escrows............................ (10,396) (9,021) Receipts from restricted escrows.......................... 9,145 21,166 --------- --------- Net cash used in investing activities............. (108,539) (294,061) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (89,312) (82,797) Distributions to partners................................. (325,000) (140,000) --------- --------- Net cash used in financing activities............. (414,312) (222,797) --------- --------- Net decrease in cash........................................ (39,063) (120,533) Cash and cash equivalents at beginning of year.............. 520,354 640,887 --------- --------- Cash and cash equivalents at end of year.................... $ 481,291 $ 520,354 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 264,865 $ 271,380 ========= =========
See Accompanying Notes to Financial Statements F-17 717 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Burgundy Court, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 31, 1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy Court Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-18 718 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements will be completed in calendar year 1997 and any excess funds will be returned for property operations in 1997. ...................................... $ 12,242 $ 11,857 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 238,888 238,022 -------- -------- $251,130 $249,879 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $28,800, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,323,625 $3,412,937 Second mortgage note payable in interest only monthly installments of $715, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 112,855 112,855 ---------- ---------- Principal balance at year end............................... 3,436,480 3,525,792 Less unamortized discount................................... (168,674) (193,155) ---------- ---------- $3,267,806 $3,332,637 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 96,342 1998..................................................... 103,924 1999..................................................... 112,103 2000..................................................... 120,927 2001..................................................... 130,444 Thereafter............................................... 2,872,740 ---------- $3,436,480 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-19 719 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee........................................... $76,344 $72,215 Partnership administration fee........................... $15,268 $14,442 Reimbursement for services of affiliates................. $26,926 $23,766 Construction fee......................................... $ -- $ 6,090
F-20 720 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. P-1 721 In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of P-2 722 $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months P-3 723 ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 724 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 725 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 726 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 727 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 728 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 729 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 730 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 731 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 732 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 733 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 734 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 735 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 736 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 737 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 738 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 739 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 740 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 741 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 742 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 743 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 744 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 745 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 746 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 747
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 748 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 749
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 750 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 751 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 752 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 753
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 754 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 755 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 756 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 757
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 758 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 759 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 760 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 761 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 762 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 763 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 764 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 765 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 766 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 767 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 768 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 769 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 770 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Burgundy Court Associates, L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Burgundy Court Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $85,934 in cash, or 2,221.25 Common OP Units of the Purchaser, or 3,437.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 771 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 772 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 773 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 774
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 775
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 776
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 777
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 778 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 779 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Calmark/Fort Collins, Ltd. in exchange for your choice of: 906 of our 8.0% Class Two Partnership Preferred Units; 585.50 of our Partnership Common Units; or $22,646 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $22,646 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Although your partnership's agreement of limited partnership provides for termination in the year 2031, the private placement memorandum pursuant to which the units were sold in 1982 indicated that the property owned by your partnership might be sold within 3 to 7 years of its acquisition if conditions permitted. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 780 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-6 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Calmark/Fort Collins, Ltd............................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Lack of Availability of Audited Financial Statements............................... S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Lower Distributions............... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-26
PAGE ----- Litigation Associated with Partnership Acquisitions............................. S-26 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-41 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Review of Appraisal.......................... S-45 Conclusions.................................. S-45 Assumptions, Limitations and Qualifications............................. S-45 Compensation and Material Relationships...... S-46 YOUR PARTNERSHIP............................... S-47 General...................................... S-47 Your Partnership and its Property............ S-47 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-49 Legal Proceedings............................ S-49 History of the Partnership................... S-49 Fiduciary Responsibility of the General Partner of Your Partnership................ S-49 Distributions and Transfers of Units......... S-50 Beneficial Ownership of Interests in Your Partnership................................ S-51 Compensation Paid to the General Partner and its Affiliates............................. S-51 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-53 Overview..................................... S-53 Results of Operations........................ S-53 THE OFFER...................................... S-56 Terms of the Offer; Expiration Date.......... S-56 Acceptance for Payment and Payment for Units...................................... S-56
i 781
PAGE ----- Procedure for Tendering Units................ S-57 Withdrawal Rights............................ S-60 Extension of Tender Period; Termination; Amendment.................................. S-60 Proration.................................... S-61 Fractional OP Units.......................... S-61 Future Plans of the AIMCO Operating Partnership................................ S-61 Voting by the AIMCO Operating Partnership.... S-62 Dissenters' Rights........................... S-62 Conditions of the Offer...................... S-62 Effects of the Offer......................... S-65 Certain Legal Matters........................ S-65 Fees and Expenses............................ S-67 Accounting Treatment......................... S-67 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-68 Tax Consequences of Exchanging Units Solely for OP Units............................... S-68 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-69 Tax Consequences of Exchanging Units Solely for Cash................................... S-69 Disguised Sale Treatment..................... S-69 Adjusted Tax Basis........................... S-70 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-70 Passive Activity Losses...................... S-70 Tax Reporting................................ S-71 Foreign Offerees............................. S-71 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-71 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-73 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-80
PAGE ----- DESCRIPTION OF PREFERRED OP UNITS.............. S-86 General...................................... S-86 Ranking...................................... S-86 Distributions................................ S-86 Allocation................................... S-87 Liquidation Preference....................... S-87 Redemption................................... S-88 Voting Rights................................ S-88 Restrictions on Transfer..................... S-89 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-89 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-91 CONFLICTS OF INTEREST.......................... S-95 Conflicts of Interest with Respect to the Offer...................................... S-95 Conflicts of Interest that Currently Exist for Your Partnership....................... S-95 Competition Among Properties................. S-95 Features Discouraging Potential Takeovers.... S-95 Future Exchange Offers....................... S-95 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-99 LEGAL MATTERS.................................. S-97 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 782 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Calmark/Fort Collins, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In August, 1997, an independent appraiser valued the property on an unencumbered basis to be $3,900,000. We estimate your property to be worth $3,665,000, less approximately $58,410 of deferred maintenance and investment. Therefore, it is possible, that S-1 783 the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 784 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2031 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-3 785 is equivalent to distributions of $1,812.00 per year on the number of Preferred OP Units, or distributions of $1,463.75 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $14,706.00 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 786 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated December 10, 1982, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within 3 to 7 years of their acquisition, provided market conditions permit. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2031. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-5 787 BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in December 2004. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership S-6 788 interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $14,706 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,812.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $14,706 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,463.75 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. S-7 789 Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the property may be sold in approximately 3 to 7 years from the date of acquisition, such property was not so sold. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 790 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: CALMARK/FORT COLLINS, LTD. Net operating income........................................ $ 375,564 Capitalization rate......................................... 10.25% ----------- Gross valuation of partnership properties................... 3,665,000 Plus: Cash and cash equivalents............................. 189,069 Plus: Other partnership assets, net of security deposits.... 46,259 Less: Mortgage debt, including accrued interest............. (2,817,127) Less: Accounts payable and accrued expenses................. (34,577) Less: Other liabilities..................................... (18,675) Partnership valuation before taxes and certain costs........ 1,029,949 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (58,410) Less: Closing costs......................................... (201,575) ----------- Estimates net valuation of your partnership................. 769,964 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 769,964 Total number of units............................. 34.0 ----------- Estimated valuation per unit................................ 22,646 =========== Cash consideration per unit................................. 22,646 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $22,646 by the $25 liquidation preference of each Preferred OP Unit to get 906 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $22,646 by a price of $38.69 to get 585.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 791 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; - the net book value of your partnership; and - recent appraisals for the property for $3,900,000, which appraisals did not take into account the mortgages, other assets and liabilities, costs of sale of the property and over $58,410 of deferred maintenance of the property. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 22,646 Partnership Preferred Units................................. 22,646 Partnership Common Units.................................... 22,646 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 22,646 Estimated going concern value............................. $ 21,751 Net book value (deficit).................................. $(51,234)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a S-10 792 financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Calmark/Fort Collins, Ltd. is a California limited partnership which was formed on January 29, 1982 for the purpose of owning and operating a single apartment property located in Fort Collins, Colorado, known as "Scotch Pines East." Your partnership property consists of 102 apartment units and was built in 1977. Your partnership has no employees. As of September 30, 1998, there were 34 units of limited partnership interest issued and outstanding, which were held of record by 37 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 34 limited partnership units in 1982. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $14,706 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Your partnership will terminate on 2031, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,773,370, payable to Lehman, which bears interest at the rate of 7.34%. The mortgage debt is due in December 2004. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 793 THE OFFER In exchange for each of your units, we are offering you a choice of: - 906.00 of our Class Two Partnership Preferred Units; - 585.50 of our Partnership Common Units; or - $22,646 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 34 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 906.00 Preferred OP Units, 585.50 Common OP Units, or $22,646 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 794 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 795 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $22,646 in cash, 906.00 Preferred OP Units or 585.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 796 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $22,646. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $9,618.95 for the fiscal year ended December 31, 1998. The property manager received management fees of $34,823.96 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $192,491 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 797 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 798
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 799 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 800
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 801 SUMMARY FINANCIAL INFORMATION OF CALMARK/FORT COLLINS, LTD. The summary financial information of Calmark/Fort Collins, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Calmark/Fort Collins, Ltd. for the years ended December 31, 1997 and 1996, is based unaudited on financial statements. The December 31, 1995, 1994, and 1993 information is based on unaudited financial information and is not included in this Prospectus Supplement. This information should be read in conjunction with such unaudited financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." CALMARK/FORT COLLINS, LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues............... $ 514 $ 494 $ 662 $ 607 $ 577 $ 528 $ 477 Net Income/(Loss)............ 28 44 (116) 27 (31) (59) (83) Net Income per limited partnership unit........... 815.29 1,281.18 (3,382.35) 794.12 (902.65) (1,717.94) (2,416.76) Distributions per limited partnership unit........... 14,558.82 -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)................... 14,558.82 -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 174 $ 53 $ 689 $ 38 $ 22 $ 33 $ 15 Real Estate, Net of Accumulated Depreciation... 1,501 1,501 1,484 1,524 1,566 1,631 1,687 Total Assets................. 1,783 1,652 2,285 1,683 1,713 1,781 1,842 Notes Payable................ 2,780 2,012 2,800 2,059 2,151 2,169 2,184 General Partners' Capital/ (Deficit).................... (23) (17) (18) (17) (17) (17) (16) Limited Partners' Capital/ (Deficit).................... (1,035) (408) (567) (452) (479) (448) (390) Partners' Capital/(Deficit).... (1,058) (425) (585) (469) (496) (465) (406) Total Distributions............ 500 -- -- -- -- -- -- Book value per limited partnership unit............. (30,449.41) (12,012.94) (16,676.47) (13,294.12) (14,088.24) (13,176.47) (11,470.59) Net increase (decrease) in cash and cash equivalents......... (515) 15 651 16 (11) 18 (43) Net cash provided by operating activities................... 96 132 187 184 93 62 34 Ratio of earnings to fixed charges...................... 1.17/1 1.27/1 1.30/1 1.12/1 0.86/1 0.74/1 0.64/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO CALMARK/ OPERATING FORT COLLINS, PARTNERSHIP LTD. ------------ ------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $1,463.75 $14,706 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $1,812.00 $14,706
S-20 802 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 803 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In August 1997, an independent appraiser valued the property on an unencumbered basis to be $3,900,000. We estimate your property to be worth $3,665,000 although we believe the property needs approximately $58,410 of deferred maintenance and investment not considered by the appraiser. Therefore, it is possible, that the sale of the property could result in you receiving more pretax cash per unit than our offer and you would receive more than our offer if the property was actually sold for any of such estimated amounts. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your S-22 804 units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the S-23 805 fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Calmark/Fort Collins, Ltd. have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's properties, including the initial construction, which occurred in 1977. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2,031 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. S-24 806 We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $1,812.00 per year on the number of Preferred OP Units, or distributions of $1,463.75 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $14,706 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." S-25 807 MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. S-26 808 POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated December 10, 1982, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within 3 to 7 years of their acquisition, provided market conditions permit. The private placement memorandum also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2031. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently controls the general partnership interest. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. S-27 809 During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. S-28 810 Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently S-29 811 structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on December, 2004. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a vote of the limited partners holding at least a majority of the units of your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. S-30 812 EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $14,706 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,812.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $14,706 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,463.75 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. S-31 813 DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the properties may be sold in approximately 3 to 7 years from the date of acquisition, such properties were not so sold. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." S-32 814 VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $375,654 10.25% $3,665,000
- --------------- (1) The total net operating income is equal to total revenues of $654,687, less total expenses of $248,433 and recurring replacement costs of $30,600. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $769,964. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. S-33 815 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Calmark/Fort Collins, Ltd. Net operating income...................................... $ 406,254 Capitalization rate....................................... 10.25% ----------- Gross valuation of partnership properties................... 3,665,000 Plus: Cash and cash equivalents............................. 189,069 Plus: Other partnership assets, net of security deposits.... 46,259 Less: Mortgage debt, including accrued interest............. (2,817,127) Less: Accounts payable and accrued expenses................. (34,577) Less: Other liabilities..................................... (18,675) Partnership valuation before taxes and certain costs........ 1,029,949 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (58,410) Less: Closing costs......................................... (201,575) ----------- Estimated net valuation of your partnership................. 769,964 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 769,964 Total number of units............................. 34.0 ----------- Estimated valuation per unit................................ 22,646 =========== Cash consideration per unit................................. 22,646 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $22,646 by the $25 liquidation preference of each Preferred OP Unit to get 906.00 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $22,646 by a price of $38.69 to get 585.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $769,964 or .14% is the net valuation of your partnership. S-34 816 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $44,000 for the nine months ended September 30, 1997 to $28,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 817 11. The estimated unit value of $22,646, based on a total estimated value of your partnership's property of $3,665,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $1,812.00 per year on the number of Preferred OP Units, or distributions of $1,463.75 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $14,706. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 818 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 819 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 2031, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 22,646 Partnership preferred units................................. $ 22,646(1) Partnership common units.................................... $ 22,646(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 22,646 Estimated going concern value............................. $ 21,751 Net book value (deficit).................................. $(51,234)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Appraisals Your partnership's property was appraised in 1997 by an independent third party appraiser, Joseph J. Blake & Associates, Inc. (the "Appraiser"), in connection with a proposed financing and not in connection with the offer. According to the appraisal reports, the scope of the appraisals included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate of the property specified in those reports was $3,900,000 for Scotch Pines East on August 14, 1998. The total appraised value of the property is $3,900,000 and was not brought down to a per unit basis by us since such appraisal does not reflect the mortgage encumbering the property of $2,817,127 (including interest), other assets and liabilities of the partnership or any costs of sales of the property as reflected in "Valuation of Units." However, using the appraisal amount instead of the "estimated gross valuation of your partnership's property" in the table in the "Valuation of Units" would result in a higher amount per unit than our offer. S-38 820 We believe that, based on the condition of the property, the appraisals substantially overstate its value. The appraisals did not take into account the deferred maintenance costs of the partnership's property. Therefore, we believe that the appraisals are less meaningful in assessing the fairness of our offer consideration than the analysis described above under "Valuation of Units." On this basis, we believe that our offer consideration is fair in relation to such appraisal amounts. The Appraiser performed the real estate appraisals in the normal course of its business and the executive officers who rendered the report are members of the Appraisal Institute. No limitations were imposed on the Appraiser by the general partner. A copy of the appraisals may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30% reflecting real estate risk and the relatively high leverage of more than 75% of real estate value. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. S-39 821 The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $21,751 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $51,234 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $21,157 per unit, going concern value of $20,300 per unit and liquidation value of $18,375 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(1,489), $(2,346) and $(4,271). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-40 822 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general S-41 823 market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $ 660,513 Operating Expenses.......................................... (269,826) Replacement Reserves -- Net................................. (62,626) Debt Service................................................ (243,168) Capital Expenditures........................................ (3,840) --------- Net Cash Flow..................................... $ 81,053 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but S-42 824 not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.25%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $58,410. Stanger observed that your partnership liquidation value of $769,964 was divided by the total units outstanding of 34 to provide the liquidation value per unit of $22,646. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $375,564 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $27,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.75%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.75%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 34 to achieve management's estimate of going concern value of $21,751 per unit. S-43 825 Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998 on limited partnership units. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $22,646 per unit is equal to management's estimate of liquidation value, and reflects a 4.1% premium to management's estimate of going concern value of $21,751. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following the closing, preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's ten day average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, direct capitalization rate of 10.5%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rates of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports and AIMCO in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value on the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 75% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $21,157, $20,300, and $18,376 representing premiums discounts to the offer price of 6.6%, 10.35% and 18.9%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." S-44 826 REVIEW OF APPRAISAL Stanger observed that the property was appraised by Joseph J. Blake & Associates Inc. as of August 14, 1997 in connection with a proposed financing. The appraised value of the property was 3,900,000 and was estimated by using the income approach and sales comparison approach to valuation wherein values of 3,900,000 and 3,875,000 were derived. Stanger observed that in the income approach, the appraiser estimated net operating income at $389,614 and utilized a 10% capitalization rate to derive value. Stanger observed that AIMCO utilized net operating income of $375,564 and a capitalization rate of 10.25% to derive the estimate of property value at $3,665,000 and that such amount is approximately 6% less than the appraisal. Stanger further observed that properties such as the property owned by the partnership often experience replacement reserves of $300 per unit or more and that utilizing a 300 per unit replacement reserve instead of a $200 per unit replacement reserve in the appraisal would have reduced the value therein to approximately $3,800,000 and that our property value estimate of $3,664,000 is 3.5% lower. Stanger advised us that Stanger considered the appraisals in connection with the preparation of its Fairness Opinion. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with S-45 827 respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-46 828 YOUR PARTNERSHIP GENERAL Calmark/Fort Collins, Ltd., is a California limited partnership which completed a private offering in 1982. Insignia acquired the general partner of your partnership in 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 37 limited partners of your partnership and a total of 34 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 29, 1982 for the purpose of owning an apartment property located in Fort Collins, Colorado, known as "Scotch Pines East." Your partnership's property is owned by the partnership but is subject to a mortgage. The property consists of 102 apartment units. There are 53 one- bedroom apartments and 1 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 97.79% in 1998, 99.02% in 1997 and 99.02% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any Renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $58,410 and are intended to be paid for out of cash flow or borrowings. Renovations or improvements include, but are not limited to, gutter and downspout repairs, hot water heater replacement, exterior lighting and irrigation repairs. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $519 $483 $457 $414 $382
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $28,048 of $3,283,400 of assessed valuation with a current yearly tax rate of 0.85%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 0.86% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2031 unless earlier S-47 829 dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 98% and $541, respectively, at December 31, 1998, compared to 99% and $518, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy to remain strong in the near future due to demand in the area and amenities of the property which appeal to students. In addition, the general partner noted that it expects to spend approximately $58,410 for capital expenditures/capital improvements at the property in 1999 to repair and improve the property's gutters and downspouts, lighting, and irrigation. These expenditures are expected to improve the desirability of the property to tenants and reduce operating expenses at the property. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,773,370, payable to S-48 830 Lehman, which bears interest at a rate of 7.34%. The mortgage debt is due in December 2004. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,411,000 of limited partnership units in 1982 for $41,500 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. According to the private placement memorandum dated December 10, 1982 by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the third year after the investments were made and had sold all of their properties after seven years of ownership. The private placement memorandum further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the property and that the partnership acquired such property for investment rather than resale. In any event, according to the private placement memorandum, the general partner anticipated that a disposition of the property would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. We do not know why your partnership did not sell all of its properties within such holding period. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2031, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Your partnership's agreement of limited partnership does not limit the liability of the general partners to your Partners or the limited partners for any act performed in their capacity as general partner. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners will not liable to your partnership or limited partners because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than S-49 831 they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership provides that the general partners of your partnership and their affiliates are entitled to indemnification from any expense, liability or loss, including attorneys' fees incurred in connection with the defense of any action, based on any act or omission by the general partners within the scope of the authority conferred by your partnership's agreement of limited partnership, including all such liabilities under Federal and state securities laws as permitted by law, except for acts or omissions constituting fraud, bad faith, willful misconduct or gross negligence. Such attorneys' fees may be paid as incurred. If such a claim for indemnification (other than for expenses incurred in a successful defense) is asserted against your partnership, your partnership will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy and will be governed by the final adjudication of such issue. Your partnership is provide indemnification to the extent of its assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $41,500.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 $0 $ 0 $ 0 1994.................................. 0 0 0 0 1995.................................. 0 0 0 0 1996.................................. 0 0 0 0 1997.................................. 0 0 0 0 1998.................................. 14,706 0 14,706 125,001 ------- -- ------- -------- Total....................... $14,706 $0 $14,706 $125,001 ======= == ======= ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that S-50 832 there have been no transfers in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $4,630 1995........................................................ 4,671 1996........................................................ 7,000 1997........................................................ 8,091 1998........................................................ 9,619
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $28,854 1995........................................................ 30,621 1996........................................................ 31,000 1997........................................................ 33,000 1998........................................................ 34,824
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-51 833 SELECTED FINANCIAL INFORMATION OF CALMARK/FORT COLLINS, LTD. Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Calmark/Fort Collins, Ltd. taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial information which are not included in this Prospectus Supplement. See "Index to Financial Statements."
SEPTEMBER 30, DECEMBER 31, -------------------- -------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ------- ---------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents......................... $ 174 $ 53 $ 689 $ 38 $ 22 $ 33 $ 15 Land & Building................................... 3,017 2,918 2,926 2,867 2,816 2,793 2,764 Accumulated Depreciation.......................... (1,516) (1,417) (1,442) (1,343) (1,250) (1,162) (1,077) Other Assets...................................... 108 98 112 121 125 117 140 ---------- ------- ---------- ------- ------- ------- ------- Total Assets.............................. $ 1,783 $ 1,652 $ 2,285 $ 1,683 $ 1,713 $ 1,781 $ 1,842 ========== ======= ========== ======= ======= ======= ======= Notes Payable..................................... $ 2,780 $ 2,012 $ 2,800 $ 2,059 $ 2,151 $ 2,169 $ 2,184 Other Liabilities................................. 61 65 70 93 58 77 64 ---------- ------- ---------- ------- ------- ------- ------- Total Liabilities......................... $ 2,841 $ 2,077 $ 2,870 $ 2,152 $ 2,209 $ 2,246 $ 2,248 ---------- ------- ---------- ------- ------- ------- ------- Partners Capital (Deficit)................ $ (1,058) $ (425) $ (585) $ (469) $ (496) $ (465) $ (406) ========== ======= ========== ======= ======= ======= =======
CALMARK/FORT COLLINS, LTD. ---------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ---------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- --------- ---------- ------- -------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue............................ $ 487 $ 474 $ 635 $ 591 $ 559 $ 507 $ 467 Other Income.............................. 27 20 27 16 19 21 10 ---------- --------- ---------- ------- -------- ---------- ---------- Total Revenue..................... $ 514 $ 494 $ 662 $ 607 $ 578 $ 528 $ 477 ---------- --------- ---------- ------- -------- ---------- ---------- Operating Expenses........................ $ 201 $ 165 $ 224 $ 218 $ 256 $ 187 $ 151 General & Administrative.................. 26 25 28 18 21 55 52 Depreciation.............................. 74 74 99 93 88 85 81 Interest Expense.......................... 161 163 217 224 221 226 229 Property Taxes............................ 24 23 28 27 23 34 47 ---------- --------- ---------- ------- -------- ---------- ---------- Total Expenses.................... $ 486 $ 450 $ 596 $ 580 $ 609 $ 418 $ 560 ---------- --------- ---------- ------- -------- ---------- ---------- Net Income before extraordinary items..... $ 28 $ 44 $ 66 $ 27 $ (31) $ (59) $ (83) Extraordinary Items....................... -- -- (182) -- ---------- --------- ---------- ------- -------- ---------- ---------- Net Income................................ $ 28 $ 44 $ (116) $ 27 $ (31) $ (59) $ (83) ========== ========= ========== ======= ======== ========== ========== Net Income per limited partnership unit... $ 815.29 $1,281.18 $(3,382.35) $794.12 $(902.65) $(1,717.94) $(2,416.76) ========== ========= ========== ======= ======== ========== ========== Distributions per limited partnership unit.................................... $14,558.82 $ -- $ -- $ -- $ -- $ -- $ -- ========== ========= ========== ======= ======== ========== ==========
S-52 834 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $28,000 for the nine months ended September 30, 1998, compared to $44,000 for the nine months ended September 30, 1997. The decrease in net income of $16,000 was primarily the result of an increase in operating expenses, partially offset by an increase in rental revenue and other income REVENUES Rental and other property revenues from the Partnership Property totaled $514,000 for the nine months ended September 30, 1998, compared to $494,000 for the nine months ended September 30, 1997. The increase of $20,000, or 4%, was due to an increase in rental rates of approximately 6%, off-set by a 1% decrease in occupancy. Other income increased by $7,000 due primarily to higher interest income, resulting from the excess proceeds received when the mortgage indebtedness was refinanced during the fourth quarter of 1997. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $201,000 for the nine months ended September 30, 1998, compared to $165,000 for the nine months ended September 30, 1997, an increase of $36,000 or 22%. The increase was the result of higher costs for advertising, combined with an increase in on-site property management salaries and expenses. Partnership Property management expenses totaled $26,000 for the nine months ended September 30, 1998, compared to $25,000 for the nine months ended September 30, 1997, an increase of $1,000. General and administrative, depreciation, interest and property tax expenses were comparative with the respective expenses incurred for the previous period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized a net loss of $116,000 for the year ended December 31, 1997, compared to net income of $27,000 for the year ended December 31, 1996. The increase in net loss of $143,000 was primarily the result of the extraordinary loss of $182,000 recognized on the refinancing of the mortgage in 1997. REVENUES Rental and other property revenues from the partnership's property totaled $662,000 for the year ended December 31, 1997, compared to $607,000 for the year ended December 31, 1996. The increase of $55,000, or 9%, was primarily due to a 6% increase in average rental, while occupancy remained stable at 98%. There was also an increase in other income due to interest earned on the excess proceeds received from the refinancing of the mortgage indebtedness during the fourth quarter of 1997. S-53 835 EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $224,000 for the year ended December 31, 1997, which is comparable to the operating expenses of $218,000 incurred in the year ended December 31, 1996. Management expenses totaled $33,000 for the year ended December 31, 1997, compared to $31,000 for the year ended December 31, 1996, an increase of $2,000. This increase is due to increased rental revenue, as management fees are a function based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $28,000 for the year ended December 31, 1997 compared to $18,000 for the year ended December 31, 1996, an increase of $10,000. The increase is primarily due to an increase in partnership administrative expenses and asset management fees. DEPRECIATION EXPENSE Depreciation expense increased $6,000 to $99,000, due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $217,000 for the year ended December 31, 1997, compared to $224,000 for the year ended December 31, 1996, a decrease of $7,000. The decrease is due to a lower interest rate on the mortgage indebtedness that was refinanced in the fourth quarter of 1997. EXTRAORDINARY ITEM The Partnership recognized a loss on extinguishment of the old debt of $182,000 in the fourth quarter of 1997. This loss was due to writing off the unamortized debt discount and loan costs associated with the old debt. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized net income of $27,000 for the year ended December 31, 1996, compared to a net loss of $32,000 for the year ended December 31, 1995. The increase in net income of $59,000 was the result of an increase in revenues, combined with a decrease in operating expenses. REVENUES Rental and other property revenues from the partnership's property totaled $607,000 for the year ended December 31, 1996, compared to $577,000 for the year ended December 31, 1995. The increase of $30,000, or 5%, was due to an increase in average rental rates, while occupancy remained stable. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $218,000 for the year ended December 31, 1996, compared to $256,000 for the year ended December 31, 1995, a decrease of $38,000 or 15%. This decrease is due primarily to higher maintenance expenses in 1995, as the property incurred extensive exterior painting costs. Management expenses totaled $31,000 for the year ended December 31, 1996, compared to $33,000 for the year ended December 31, 1995, a decrease of $2,000. General and administrative, interest and property tax expenses for 1996 were comparable with the respective expenses incurred in the preceding year. S-54 836 DEPRECIATION EXPENSE Depreciation expense increased $5,000 to $93,000, due primarily to capitalized additions to the investment property during the year ended December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $174,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $2,780,000. The mortgages require monthly payments of approximately $19,000 until December, 2004, at which time a balloon payment of approximately $2,585,000 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.34%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-55 837 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 34 units of your partnership (up to 8.5 units) for consideration per unit of (i) 906.00 Preferred OP Units, (ii) 585.50 Common OP Units, or (iii) $22,646 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-56 838 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-57 839 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-58 840 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-59 841 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-60 842 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-61 843 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-62 844 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-63 845 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-64 846 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-65 847 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-66 848 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-67 849 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-68 850 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-69 851 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-70 852 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-71 853 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-72 854 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under California law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash from Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2031. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating directly or indirectly, develop, own, hold, Partnership is to conduct any business that maintain, operate for the production of may be lawfully conducted by a limited income and dispose of property situated in partnership organized pursuant to the the United States. Subject to restrictions Delaware Revised Uniform Limited Part- contained in your partnership's agreement of nership Act (as amended from time to time, limited partnership, your partnership may or any successor to such statute) (the perform all acts necessary or appropriate in "Delaware Limited Partnership Act"), connection therewith and reasonably related provided that such business is to be thereto, including borrowing money, creating conducted in a manner that permits AIMCO to liens and investing funds in financial be qualified as a REIT, unless AIMCO ceases instruments. to qualify as a REIT. The AIMCO Operating Partner-
S-73 855 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not less than 20 nor more than 34 limited partners and to other persons, and units for cash and notes to selected persons to admit such other persons as additional who fulfill the requirements set forth in limited partners, on terms and conditions your partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners and no sole discretion. The net capital action or consent is required in connection contribution need not be equal for all OP with the admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP The general partner is also authorized to Unitholder. See "Description of OP issue additional units for sale from time to Units -- Management by the AIMCO GP" in the time, the number, price and terms of which accompanying Prospectus. Subject to Delaware shall be determined at the sole discretion law, any additional partnership interests of the general partner. In certain may be issued in one or more classes, or one circumstances set forth in your or more series of any of such classes, with partnership's agreement of limited such designations, preferences and relative, partnership, limited partners who purchased participating, optional or other special the units described in the previous para- rights, powers and duties as shall be graph may possess preemptive rights in determined by the general partner, in its connection with the sale of additional sole and absolute discretion without the units. approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or contract with affiliated persons for the contribute funds or other assets to its management or supervision of any or all of subsidiaries or other persons in which it the assets of your partnership has an equity investment,
S-74 856 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or for the performance of any other services and such persons may borrow funds from the which the general partner deem necessary or AIMCO Operating Partnership, on terms and advisable for the operation of your conditions established in the sole and partnership. Any and all compensation paid absolute discretion of the general partner. to such affiliated persons in connection To the extent consistent with the business with services performed for your partnership purpose of the AIMCO Operating Partnership must be reasonable and fair to your and the permitted activities of the general partnership and the partners. Such contracts partner, the AIMCO Operating Partnership may between your partnership and the general transfer assets to joint ventures, limited partner or any affiliates must provide that liability companies, partnerships, they may be cancelled at any time by your corporations, business trusts or other partnership without penalty upon 60 days business entities in which it is or thereby prior written notice. In addition, the becomes a participant upon such terms and general partner and its affiliates may lend subject to such conditions consistent with money to your partnership which will be the AIMCO Operating Partnership Agreement repaid in accordance with the terms of the and applicable law as the general partner, advances out of the gross receipts of your in its sole and absolute discretion, partnership with interest at the then believes to be advisable. Except as prevailing commercial rate or at the highest expressly permitted by the AIMCO Operating rate permitted by the applicable usury law, Partnership Agreement, neither the general whichever is less. Your partnership may lend partner nor any of its affiliates may sell, working capital reserves which are not transfer or convey any property to the AIMCO needed to meet partnership expenses or make Operating Partnership, directly or distributions as determined in the sole indirectly, except pursuant to transactions discretion of the general partner to that are determined by the general partner affiliates of the general partner. Such in good faith to be fair and reasonable. loans are payable on demand and bear interest at the then prevailing commercial rate of interest, are otherwise commercially reasonable and in the aggregate, do not exceed the amount of excess working capital reserves of your partnership.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations, recourse and the general partner has full power and nonrecourse, on behalf of your partnership authority to borrow money on behalf of the and to give as security therefore any AIMCO Operating Partnership. The AIMCO partnership's property. Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their designated representative to inspect purpose of such demand and at such OP and, at their sole cost and expense, copy Unitholder's own expense, to obtain a the contents of the books and records of current list of the name and last known your partnership at the principal place of business, residence or mailing address of business of your partnership during normal the general partner and each other OP business hours. Unitholder.
Management Control The general partner of your partnership All management powers over the business and manages and controls your partnership and affairs of the AIMCO Operating Partnership all aspects of its business. The general are vested in AIMCO-GP, Inc., which is the partner has all the rights and powers which general partner. No OP Unitholder has any may be possessed by a general partner right to participate in or
S-75 857 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP under California law. Subject to the exercise control or management power over limitations contained in your partnership's the business and affairs of the AIMCO agreement of limited partnership, the Operating Partnership. The OP Unitholders general partner has the power to perform have the right to vote on certain matters acts, upon such terms and conditions as the described under "Comparison of Your Units general partner deem appropriate and in and AIMCO OP Units -- Voting Rights" below. furtherance of your partnership's business. The general partner may not be removed by The limited partners have no right to the OP Unitholders with or without cause. participate in the management or control of your partnership, to act on behalf of your In addition to the powers granted a general partnership, to bind your partnership, or, partner of a limited partnership under except as specifically authorized in your applicable law or that are granted to the partnership's agreement of limited general partner under any other provision of partnership, to vote upon any matter the AIMCO Operating Partnership Agreement, involving your partnership. the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Your partnership's agreement of limited Notwithstanding anything to the contrary set partnership does not limit the liability of forth in the AIMCO Operating Partnership the general partner to your partnership or Agreement, the general partner is not liable the limited partners for any act performed to the AIMCO Operating Partnership for in its capacity as general partner. How- losses sustained, liabilities incurred or ever, your partnership's agreement of benefits not derived as a result of errors limited partnership does provide that the in judgment or mistakes of fact or law of general partner of your partnership and its any act or omission if the general partner affiliates are entitled to indemnification acted in good faith. The AIMCO Operating from any expense, liability or loss, Partnership Agreement provides for including attorneys' fees incurred in indemnification of AIMCO, or any director or connection with the defense of any action, officer of AIMCO (in its capacity as the based on any act or omission by the general previous general partner of the AIMCO partner within the scope of the authority Operating Partnership), the general partner, conferred by your partnership's agreement of any officer or director of general partner limited partnership, including all such or the AIMCO Operating Partnership and such liabilities under Federal and state other persons as the general partner may securities laws as permitted by law, except designate from and against all losses, for acts or omissions constituting fraud, claims, bad
S-76 858 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP faith, willful misconduct or gross damages, liabilities, joint or several, negligence. expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner upon a vote the business and affairs of the AIMCO of the limited partners owning a majority of Operating Partnership. The general partner the outstanding units and elect a substi- may not be removed as general partner of the tute general partner if no general partner AIMCO Operating Partnership by the OP remains. Subject to limitations set forth in Unitholders with or without cause. Under the your partnership's agreement of limited AIMCO Operating Partnership Agreement, the partnership, the general partner may general partner may, in its sole discretion, withdraw from your partnership at any time. prevent a transferee of an OP Unit from A limited partner may not transfer its becoming a substituted limited partner interests without the written consent of the pursuant to the AIMCO Operating Partnership general partner which may be withheld at the Agreement. The general partner may exercise sole discretion of the general partner. this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add representations, duties or Agreement, whereby the general partner may, obligations of the general partner or without the consent of the OP Unitholders, surrender a right or power granted to the amend the AIMCO Operating Partnership general partner, effect a ministerial change Agreement, amendments to the AIMCO Operating which does not materially affect the rights Partnership Agreement require the consent of of the limited partners and as required by the holders of a majority of the law. All other amend-
S-77 859 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ments must be approved by the limited outstanding Common OP Units, excluding AIMCO partners owning more than 50% of the units and certain other limited exclusions (a and the general partner. Amendments of "Majority in Interest"). Amendments to the provisions that require the consent of a AIMCO Operating Partnership Agreement may be greater percentage than a majority may be proposed by the general partner or by amended only the percentage required in such holders of a Majority in Interest. Following provisions. In addition, any amendment that such proposal, the general partner will adversely affects a partner or partners must submit any proposed amendment to the OP be approved by the affected parties. Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fees for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has personally liable for claims by creditors of personal liability for the AIMCO Operating your partnership, except as provided under Partnership's debts and obligations, and California law. liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a
S-78 860 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner has the responsibility Unless otherwise provided for in the for the safekeeping and use of all funds and relevant partnership agreement, Delaware law assets of your partnership and must not generally requires a general partner of a employ or permit others to employ such funds Delaware limited partnership to adhere to or assets in any manner except for the fiduciary duty standards under which it owes exclusive benefit of your partnership. Your its limited partners the highest duties of partnership's agreement of limited good faith, fairness and loyalty and which partnership provides that the general generally prohibit such general partner from partner and its affiliates with whom they taking any action or engaging in any contract on behalf of your partnership must transaction as to which it has a conflict of devote such of their time to the business of interest. The AIMCO Operating Partnership your partnership as they may, in their sole Agreement expressly authorizes the general discretion, deem necessary to conduct said partner to enter into, on behalf of the business. The general partner and its AIMCO Operating Partnership, a right of affiliates may engage for their own account first opportunity arrangement and other and for the account of others in any conflict avoidance agreements with various business ventures, including the purchase of affiliates of the AIMCO Operating real estate properties, the development, Partnership and the general partner, on such operation, management or syndication of real terms as the general partner, in its sole estate properties, and your partnership and absolute discretion, believes are shall have no right to participate therein. advisable. The AIMCO Operating Partnership However, the general partner must at all Agreement expressly limits the liability of times act in the best interests of your the general partner by providing that the partnership and in no event contrary to the general partner, and its officers and fiduciary relationship that it bears at all directors will not be liable or accountable times in relation to your partnership and to in damages to the AIMCO Operating each of the partners with regard to your Partnership, the limited partners or as- partnership's business. signees for errors in judgment or mistakes of fact or law or of any act or omission if In general, your partnership's agreement of the general partner or such director or limited partnership and the AIMCO Operating officer acted in good faith. See Partnership Agreement have limitations on "Description of OP Units -- Fiduciary the liability of the general partner but Responsibilities" in the accompanying such limitations differ and provide more Prospectus. protection for the general partner of the AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against
S-79 861 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Oper-
S-80 862 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS after the fifth anniversary of the ating Partnership sells or refi- issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the limited AIMCO Operating Partnership OP Unitholders have voting partners owning a majority Agreement, the holders of rights only with respect to of the outstanding units may the Preferred OP Units will certain limited matters such without the concurrence of have the same voting rights as certain amendments and the general partners, vote as holders of the Common OP termination of the AIMCO to amend your partnership's Units. See "Description of Operating Partnership agreement of limited OP Units" in the accompany- Agreement and certain partnership, subject to ing Prospectus. So long as transactions such as the certain limitations; any Preferred OP Units are institution of bankruptcy dissolve and terminate your outstanding, in addition to proceedings, an assignment partnership; remove the any other vote or consent of for the benefit of creditors general partner; elect the partners required by law or and certain transfers by the general partner; and approve by the AIMCO Operating general partner of its or disapprove the sale of Partnership Agreement, the interest in the AIMCO all or substantially all of affirmative vote or consent Operating Partnership or the the assets of your of holders of at least 50% admission of a successor partnership. of the outstanding Preferred general partner. OP Units will be necessary The general partner may for effecting any amendment Under the AIMCO Operating cause the dissolution of the of any of the provisions of Partnership Agreement, the your partnership by retiring the Partnership Unit general partner has the unless, the remaining Designation of the Preferred power to effect the general partner elects to OP Units that materially and acquisition, sale, transfer, continue your partnership adversely affects the rights exchange or other within 120 days or if there or preferences of the disposition of any assets of is no remaining general holders of the Preferred OP the AIMCO Operating partner, the limited Units. The creation or Partnership (including, but partners owning more than issuance of any class or not limited to, the exercise 50% of the then outstanding series of partnership units, or grant of any conversion, units may elect new general including, without option, privilege or partner to continue your limitation, any partner- subscription right or any partnership. ship units that may have other right available in rights senior or superior to connection with any assets In general, you have greater the Preferred OP Units, at any time held by the voting rights in your shall not be deemed to AIMCO Operating Partnership) partnership than you will materially adversely affect or the merger, have as an OP Unitholder. OP the rights or preferences of consolidation, Unitholders cannot remove the holders of Preferred OP reorganization or other the general partner of the Units. With respect to the combination of the AIMCO AIMCO Operating Partnership. exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO
S-81 863 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash from at the rate of $0.50 per or such portion as the Operations (as defined in Preferred OP Unit; provided, general partner may in its your partnership's agreement however, that at any time sole and absolute discretion of limited partnership) are and from time to time on or determine, of Available Cash to be distributed from time after the fifth anniversary (as defined in the AIMCO to time but no less often of the issue date of the Operating Partnership than quarterly and not later Preferred OP Units, the Agreement) generated by the than ninety days after the AIMCO Operating Partnership AIMCO Operating Partnership end of the fiscal quarter. may adjust the annual during such quarter to the The distributions payable to distribution rate on the general partner, the special the partners are not fixed Preferred OP Units to the limited partner and the in amount and depend upon lower of (i) 2.00% plus the holders of Common OP Units the operating results and annual interest rate then on the record date es- net sales or refinancing applicable to U.S. Treasury tablished by the general proceeds available from the notes with a maturity of partner with respect to such disposition of your five years, and (ii) the quarter, in partnership's assets. annual dividend rate on
S-82 864 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the most recently issued accordance with their AIMCO non-convertible respective interests in the preferred stock which ranks AIMCO Operating Partnership on a parity with its Class H on such record date. Holders Cumulative Preferred Stock. of any other Preferred OP Such distributions will be Units issued in the future cumulative from the date of may have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-83 865 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) such trans- securities exchange. The transferability of the OP fer is in compliance with Preferred OP Units are Units. Until the expiration applicable Federal and state subject to restrictions on of one year from the date on securities law, (2) a transfer as set forth in the which an OP Unitholder written assignment has been AIMCO Operating Partnership acquired OP Units, subject duly executed by the as- Agreement. to certain exceptions, such signor and assignee, (3) the OP Unitholder may not written approval of the Pursuant to the AIMCO transfer all or any por- managing general partner Operating Partnership tion of its OP Units to any which may be withheld in the Agreement, until the transferee without the sole and absolute discretion expiration of one year from consent of the general of the general partner has the date on which a holder partner, which consent may been granted and (4) the of Preferred OP Units be withheld in its sole and assignor or the assignee acquired Preferred OP Units, absolute discretion. After pays a transfer fee. subject to certain the expiration of one year, exceptions, such holder of such OP Unitholder has the There are no redemption Preferred OP Units may not right to transfer all or any rights associated with your transfer all or any portion portion of its OP Units to units. of its Preferred OP Units to any person, subject to the any transferee without the satisfaction of certain con- consent of the general ditions specified in the partner, which consent may AIMCO Operating Partnership be withheld in its sole and Agreement, including the absolute discretion. After general partner's right of the expiration of one year, first refusal. See such holders of Preferred OP "Description of OP Units -- Units has the right to Transfers and Withdrawals" transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-84 866 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-85 867 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-86 868 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-87 869 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-88 870 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-89 871 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-90 872 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-91 873 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-92 874 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-93 875 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-94 876 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $7,000 in 1996, $8,091 in 1997 and $9,619 in 1998. The property manager received management fees of $31,000 in 1996, $33,000 in 1997 and $34,824 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-95 877 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $192,491 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-96 878 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-97 879 CALMARK/FORT COLLINS, LTD. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-3 Condensed Statement of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note A -- Basis of Presentation (Unaudited)................. F-5 Balance Sheet as of December 31, 1997 (Unaudited)........... F-6 Statement of Operations for the year ended December 31, 1997 (Unaudited)............................................... F-7 Statement of Changes in Partners' Deficit for the year ended December 31, 1997 (Unaudited)............................. F-8 Statement of Cash Flows for the year ended December 31, 1997 (Unaudited)............................................... F-9 Notes to Financial Statements (Unaudited)................... F-10 Balance Sheet as of December 31, 1996 (Unaudited)........... F-15 Statement of Operations for the year ended December 31, 1996 (Unaudited)............................................... F-16 Statement of Changes in Partners' Deficit for the year ended December 31, 1996 (Unaudited)............................. F-17 Statement of Cash Flows for the year ended December 31, 1996 (Unaudited)............................................... F-18 Notes to Financial Statements (Unaudited)................... F-19
F-1 880 CALMARK/FORT COLLINS, LTD. CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 174,000 Receivables and deposits.................................... 30,000 Other assets................................................ 78,000 Investment property: Land...................................................... $ 190,000 Building and related personal property.................... 2,827,000 ----------- 3,017,000 Less: Accumulated depreciation............................ (1,516,000) 1,501,000 ----------- ----------- Total assets...................................... $ 1,783,000 =========== LIABILITIES AND PARTNERS' DEFICIT Accrued liabilities....................................... $ 25,000 Property taxes payable.................................... 22,000 Tenant security deposits.................................. 14,000 Notes payable............................................. 2,780,000 Partners' deficit................................. (1,058,000) ----------- Total liabilities and partners' deficit........... $ 1,783,000 ===========
See accompanying note. F-2 881 CALMARK/FORT COLLINS, LTD. CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $487,000 $474,000 Other income.............................................. 27,000 20,000 -------- -------- Total revenues.................................... 514,000 494,000 Expenses: Operating expenses........................................ 201,000 165,000 General and administrative expenses....................... 26,000 25,000 Depreciation expense...................................... 74,000 74,000 Interest expense.......................................... 161,000 163,000 Property tax expense...................................... 24,000 23,000 -------- -------- Total expenses.................................... 486,000 450,000 Net income (loss)................................. $ 28,000 $ 44,000 ======== ========
See accompanying note. F-3 882 CALMARK/FORT COLLINS, LTD. CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- Operating activities: Net income (loss)......................................... $ 28,000 $ 44,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 101,000 101,000 Changes in accounts: Receivables and deposits and other assets.............. (4,000) 15,000 Accounts payable and accrued expenses.................. (29,000) (28,000) --------- -------- Net cash provided by (used in) operating activities...................................... 96,000 132,000 Investing activities: Property improvements and replacements.................... (91,000) (51,000) --------- -------- Net cash provided by (used in) investing activities....... (91,000) (51,000) Financing activities: Payments on mortgage...................................... (20,000) (66,000) Partners' distributions................................... (500,000) -- --------- -------- Net cash provided by (used in) financing activities....... (520,000) (66,000) --------- -------- Net increase (decrease) in cash and cash equivalents...... (515,000) 15,000 Cash and cash equivalents at beginning of year............ 689,000 38,000 --------- -------- Cash and cash equivalents at end of period................ $ 174,000 $ 53,000 ========= ========
See accompanying note. F-4 883 CALMARK/FORT COLLINS, LTD NOTE TO CONDENSED FINANCIAL STATEMENTS NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Calmark/Fort Collins, Ltd. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 884 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEET -- UNAUDITED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 689 Receivables and deposits.................................... 38 Loan costs, net of accumulated amortization of $1........... 66 Other assets................................................ 8 Apartment property, at cost (Notes 3 and 4): Land and improvements..................................... $ 190 Buildings and related personal property................... 2,736 2,926 Less accumulated depreciation............................. (1,442) 1,484 ------- ------- $ 2,285 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 6 Accrued liabilities....................................... 45 Long-term debt (Notes 3 and 4)............................ 2,800 Tenant security deposit liabilities....................... 19 ------- 2,870 Partners' deficit: Limited Partners (34 units issued and outstanding)........ $ (567) General Partners.......................................... (18) (585) ------- ------- $ 2,285 =======
See accompanying notes. F-6 885 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 635 Other income.............................................. 27 ---------- 662 Expenses: Operating................................................. $224 General and administrative................................ 28 Interest.................................................. 217 Depreciation.............................................. 99 Property taxes............................................ 28 596 ---- ---------- Income before extraordinary item............................ $ 66 Extraordinary loss on extinguishment of debt (Note 4)....... (182) ---------- Net loss.................................................... $ (116) ========== Net loss allocated to general partners (1%)................. $ (1) Net loss allocated to limited partners (99%)................ (115) ---------- $ (116) ========== Per limited partnership unit: Income before extraordinary item.......................... $ 1,917.06 Extraordinary loss on extinguishment of debt.............. (5,299.41) ---------- Net loss.................................................... $(3,382.35) ==========
See accompanying notes. F-7 886 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- UNAUDITED (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- Partners' deficit at December 31, 1996...................... $(17) $(452) $(469) Net loss.................................................. (1) (115) (116) ---- ----- ----- Partners' deficit at December 31, 1997...................... $(18) $(567) $(585) ==== ===== =====
See accompanying notes. F-8 887 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- UNAUDITED YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Operating activities Net loss.................................................. $ (116) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on extinguishment of debt........... 182 Depreciation........................................... 99 Amortization of loan costs and discount................ 34 Changes in accounts: Receivables and deposits............................. 12 Other assets......................................... (1) Accounts payable..................................... (23) Accrued liabilities.................................. 1 Tenant security deposit liabilities.................. (1) ------- Net cash provided by operating activities......... 187 Investing activities Property improvements and replacements.................... (59) Financing activities Payments on long-term debt................................ (2,208) Additional borrowings on long-term debt................... 2,800 Loan costs................................................ (66) Debt extinguishment costs................................. (3) ------- Net cash provided by financing activities......... 523 ------- Net increase in cash and cash equivalents......... 651 Cash and cash equivalents at December 31, 1996............ 38 ------- Cash and cash equivalents at December 31, 1997............ $ 689 ======= Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 180 =======
See accompanying notes. F-9 888 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997 1. ORGANIZATION Description of Partnership Calmark/Fort Collins, Ltd., a California limited partnership (the "Partnership"), was formed in January 1982 to acquire and operate a 102-unit apartment complex in Fort Collins, Colorado. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General Partner, Calmark/Fort Collins, Inc., a California corporation. Thirty-four units of limited partnership interest were issued. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partners or unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Calmark/Fort Collins, Inc., a California corporation (the Corporate General Partner) and Fort Collins Company, Ltd., a California limited partnership (Associate General Partner). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. Ordinary income under Section 751(c) of the Internal Revenue Code will be allocated between the Partners as a class in the same proportion as such deductions were allocated to them. b. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. c. Any remaining income will be allocated so as to produce a 25:75 ratio between the aggregate positive adjusted capital account balances of the General Partners and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations (as defined) is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. To the General Partners an amount equal to the excess gross rental income (as defined), not to exceed $66,500. b. 1% to the General Partners and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). c. The remainder is allocated 25% to the General Partners and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. F-10 889 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. F-11 890 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. 3. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND COST CAPITALIZED RELATED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ---------------- ---------------- Fort Collins Apartments..................... $2,800 $190 $2,540 $196 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DEPRECIATION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ------------ ---- ------------- ------ ------------ -------- ------------ Fort Collins Apartments......... $190 $2,736 $2,926 $1,442 1/82 5-30 ==== ====== ====== ====== ==== ====
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $2,867 Property improvements..................................... 59 ------ $2,926 ====== Accumulated Depreciation Balance at beginning of year.............................. $1,343 Additions charged to expense.............................. 99 ------ Balance at end of year.................................... $1,442 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $2,926,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is approximately $2,619,000. F-12 891 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) 4. LONG-TERM DEBT Long-term debt payable at December 31, 1997 consists of the following (dollar amounts in thousands): Mortgage note payable to Lehman Brothers Holdings, Inc. secured by a first deed of trust on the property. This note bears interest at 7.34% per annum. Principal and interest payments of $19 are payable monthly, with a balloon payment of $2,585 due on December 1, 2004......... $2,800 ======
During 1997, the Partnership refinanced its long-term debt. The Partnership recognized a loss on extinguishment of the old debt of approximately $182,000 primarily due to writing off unamortized debt discount and loan costs. In addition, the Partnership incurred approximately $66,000 in costs associated with the new debt. The new debt contains prepayment penalties if repaid prior to maturity. Scheduled principal payments of long-term debt subsequent to December 31, 1997 are as follows (in thousands): 1998........................................................ $ 27 1999........................................................ 29 2000........................................................ 31 2001........................................................ 33 2002........................................................ 36 Thereafter.................................................. 2,644 ------ $2,800 ======
5. RELATED PARTY TRANSACTIONS Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $33 Reimbursements for general partner expenses................. $ 8
For the period of January 1, 1997 to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. 6. INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. F-13 892 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ (116) Deduct: Depreciation differences.................................. (42) ---------- Federal taxable loss........................................ $ (158) ========== Federal taxable loss per limited partnership unit........... $(4,600.59) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (585) Accumulated depreciation.................................... (1,177) Syndication costs........................................... 20 ------- Net liabilities -- tax basis................................ $(1,742) =======
7. SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc. an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 893 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash........................................................ $ 38 Receivables and deposits.................................... 50 Loan costs, net of accumulated amortization of $44.......... 64 Other assets................................................ 7 Apartment property, at cost (Notes 3 and 4): Land and improvements..................................... $ 190 Buildings and related personal property................... 2,677 ------- 2,867 Less accumulated depreciation............................. (1,343) 1,524 ------- ------ $1,683 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 29 Accrued liabilities....................................... 44 Long-term debt (Notes 3 and 4)............................ 2,059 Tenant security deposits.................................. 20 ------ 2,152 Partners' deficit: Limited Partners (34 units issued and outstanding)........ $ (452) General Partners.......................................... (17) (469) ------- ------ $1,683 ======
See accompanying notes. F-15 894 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $ 591 Other income.............................................. 16 ------- 607 Expenses: Interest.................................................. $224 Depreciation.............................................. 93 Operating expenses........................................ 218 Property taxes............................................ 27 General and administrative................................ 18 580 ---- ------- Net income.................................................. $ 27 ======= Net income allocated to general partners (1%)............... -- Net income allocated to limited partners (99%).............. $ 27 ======= Net income per limited partnership unit..................... $ .79 =======
See accompanying notes. F-16 895 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT (UNAUDITED) (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- Partners' deficit at December 31, 1995...................... $(17) $(479) $(496) Net income................................................ -- 27 27 ---- ----- ----- Partners' deficit at December 31, 1996...................... $(17) $(452) $(469) ==== ===== =====
See accompanying notes. F-17 896 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Operating activities Net income................................................ $ 27 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 93 Amortization of loan costs and discount................ 36 Changes in accounts: Receivables and deposits............................. (4) Other assets......................................... (3) Accounts payable..................................... 19 Accrued liabilities.................................. 16 ----- Net cash provided by operating activities......... 184 Investing activities Property improvements and replacements.................... (51) Financing activities Payments on long-term debt................................ (117) ----- Net increase in cash.............................. 16 Cash at December 31, 1995................................... 22 ----- Cash at December 31, 1996................................... $ 38 ===== Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 175 =====
See accompanying notes. F-18 897 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 1. ORGANIZATION Description of Partnership Calmark/Fort Collins, Ltd., a California limited partnership (the "Partnership"), was formed in January 1982 to acquire and operate a 102-unit apartment complex in Fort Collins, Colorado. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General Partner, Calmark/Fort Collins, Inc., a California corporation. Thirty-four units of limited partnership interest were issued. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partners or unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Calmark/Fort Collins, Inc., a California corporation (the Corporate General Partner) and Fort Collins Company, Ltd., a California limited partnership (Associate General Partner). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. Ordinary income under Section 751(c) of the Internal Revenue Code will be allocated between the Partners as a class in the same proportion as such deductions were allocated to them. b. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. c. Any remaining income will be allocated so as to produce a 25:75 ratio between the aggregate positive adjusted capital account balances of the General Partners and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations (as defined) is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. To the General Partners an amount equal to the excess gross rental income (as defined), not to exceed $66,500. b. 1% to the General Partners and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). c. The remainder is allocated 25% to the General Partners and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. F-19 898 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. F-20 899 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. 3. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND COST CAPITALIZED RELATED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ---------------- ---------------- Fort Collins Apartments........................ $2,059 $190 $2,540 $137 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS ----------- ---- ------------- ------ ------------ -------- ----------- Fort Collins Apartments............... $190 $2,677 $2,867 $1,343 1/82 5-30 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands):
Investment Property Balance at beginning of year.............................. $2,816 Property improvements..................................... 51 ------ Balance at end of year.................................... $2,867 ====== Accumulated Depreciation Balance at beginning of year.............................. $1,250 Additions charged to expense.............................. 93 ------ Balance at end of year.................................... $1,343 ======
F-21 900 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $2,867,000. The accumulated depreciation taken for FEDERAL INCOME TAX PURPOSES AT DECEMBER 31, 1996 IS APPROXIMATELY $2,478,000.4. LONG- Term DebtLong-term debt payable at December 31, 1996 consists of the following (in thousands): Mortgage note payable to Metmor Financial, Inc. secured by a first deed of trust on the property. This note bears interest at 8.25% per annum. Principal and interest payments of $18 are payable monthly, with a balloon payment of $1,664 due on January 1, 2003....................................................... $2,039 Promissory note payable to E.E. Mitchell and Co. This note bears interest at 8.8% per annum. Interest and principal payments based on cash flow (as defined in the note) are made monthly. The unpaid principal and interest is due on December 1, 1997... 169 ------ 2,208 Less unamortized loan discount fee...................................... (149) ------ $2,059 ======
F-22 901 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 902 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 903 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 904 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 905 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 906 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 907 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 908 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 909 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 910 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 911 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 912 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 913 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 914 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 915 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 916 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 917 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 918 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 919 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 920 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 921 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 922 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 923 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 924 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 925 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 926 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 927 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 928
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 929 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 930
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 931 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 932 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 933 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 934
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 935 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 936 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 937 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 938
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 939 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 940 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 941 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 942 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 943 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 944 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 945 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 946 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 947 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 948 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 949 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 950 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 951 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Calmark Ft. Collins Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Calmark Ft. Collins Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $22,646 in cash, or 585.50 Common OP Units of the Purchaser, or 906 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; A-1 952 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Revised the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. A-2 953 In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 954 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 955
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 956
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 957
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 958
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 959 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 960 SUBJECT TO COMPLETION, DATED MARCH , 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Catawba Club Associates, L.P. in exchange for your choice of: 446.25 of our 8.0% Class Two Partnership Preferred Units; 288.50 of our Partnership Common Units; or $11,155 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $11,155 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 961 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Catawba Club Associates, L.P............................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-46 Borrowing Policies........................... S-47 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59
i 962
PAGE ----- Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 963 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $5,313,000 less approximately $515,785 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 964 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 965 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2008 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 966 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 967 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $3,047,071 balloon payment due on its mortgage debt on November 15, 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment date, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 968 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002 and require a balloon payment of $3,047,071. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 969 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $892.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $721.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 970 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 971 VALUATION OF UNITS We determined the offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 571,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... $ 5,313,000 Plus: Cash and cash equivalents............................. 10,388 Plus: Other partnership assets, net of security deposits.... 314,283 Less: Mortgage debt, including accrued interest............. (3,850,312) Less: Accounts payable and accrued expenses................. (62,657) Less: Other liabilities..................................... (731,150) ----------- Partnership valuation before taxes and certain costs........ 993,552 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (515,785) Less: Closing costs......................................... (132,825) ----------- Estimated net valuation of your partnership................. 344,942 Percentage of estimated net valuation allocated to holders of units.................................................. 98.63% ----------- Estimated net valuation of units............................ 340,231 Total number of units............................. 30.5 ----------- Estimated valuation per unit................................ 11,155 =========== Cash consideration per unit................................. $ 11,155 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $11,155 by the $25 liquidation preference of each Preferred OP Unit to get 446.25 Preferred OP Units per unit. S-9 972 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $11,155 by a price of $38.69 to get 289.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 11,155 Partnership Preferred Units................................. $ 11,155 Partnership Common Units.................................... $ 11,155 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 11,155 Estimated going concern value............................. $ 2,506 Alternative going concern value(1)........................ $ 4,649 Net book value (deficit).................................. $(79,615)
- --------------- (1) Assumes sale of the property when the balloon payment is due instead of refinancing the mortgage. S-10 973 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Catawba Club Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1985 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Catawba Club Apartments." Your partnership's property consists of 186 units and was built in 1975. Your partnership has no employees. As of September 30, 1998, there were 30.5 units of limited partnership interest issued and outstanding, which were held of record by 45 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,966,400 of limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership made no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,600,402, payable to Marine Midland, Bank of America and FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $130,106, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, the general partner of your partnership has no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 974 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 446.25 of our Class Two Partnership Preferred Units; - 288.50 of our Partnership Common Units; or - $11,155 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 30.5 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 446.25 Preferred OP Units, 288.50, Common OP Units, or $11,155 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 975 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 976 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $11,155 in cash, 446.25 Preferred OP Units or 288.50 Common OP Units. Both your units and the OP Units S-14 977 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $11,155. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $24,729 for the fiscal year ended December 31, 1998. The property manager received management fees of $58,102 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $85,057 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 978 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 979
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 980 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 981
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 982 SUMMARY FINANCIAL INFORMATION OF CATAWBA CLUB ASSOCIATES, L.P. The summary financial information of Catawba Club Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Catawba Club Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." CATAWBA CLUB ASSOCIATES, L.P.
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues................. $ 876,000 $ 895,000 $ 1,196,000 $ 1,138,000 $ 1,081,000 $ 1,089,000 $ 1,064,000 Net Income/(Loss).............. 31,000 67,000 39,000 -- (122,000) (209,000) (268,000) Net Income (Loss) per limited partnership unit............. 1,006 2,175 1,266 -- (3,960) (6,751) (8,699) Distributions per limited partnership unit............. -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)..................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents...... $ 61,000 $ 53,000 $ 16,000 $ 38,000 $ 71,000 $ 86,000 $ 86,000 Real Estate, Net of Accumulated Depreciation................. 1,737,000 359,000 1,766,000 1,715,000 1,736,000 1,799,000 2,044,000 Total Assets................... 2,148,000 2,169,000 2,161,000 2,110,000 2,151,000 2,269,000 2,468,000 Notes Payable.................. 4,028,000 4,117,000 4,097,000 4,179,000 4,254,000 4,323,000 4,386,000 General Partners Capital/(Deficit).............. -- -- -- -- -- -- -- Limited Partners Capital/(Deficit).............. -- -- -- -- -- -- -- Partners' Capital/(Deficit)...... (2,397,000) (2,400,000) (2,428,000) (2,467,000) (2,467,000) (2,345,000) (2,137,000) Total Distributions.............. -- -- -- -- -- -- -- Book value per limited partnership unit............... -- -- -- -- -- -- -- Net increase (decrease) in cash and cash equivalents........... 45,000 15,000 (22,000) (10,000) (12,000) (2,000) (4,700) Net cash provided by operating activities..................... 201,000 219,000 251,000 181,000 198,000 176,000 207,000 Ratio of earnings to fixed charges........................ 1.12/1 1.26/1 1.10/1 1.00/1 0.70/1 0.49/1 0.37/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING CATAWBA CLUB PARTNERSHIP ASSOCIATES, L.P. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $721.25 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $892.50 $ 0
S-20 983 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 984 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $5,313,000 although we believe the property needs approximately $515,785 of deferred maintenance and investment not considered by the appraiser. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 985 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 986 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 987 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 988 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $3,047,071 balloon payment due on its mortgage debt on November 15, 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment date, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 989 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest, consisting of a 0% limited partnership interest and a .992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 990 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 991 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November 15, 2002 and require a balloon payment totaling $3,047,071. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payment. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If S-29 992 the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $892.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 993 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $721.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 994 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.6% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $571,135 10.75% $5,313,000
- --------------- (1) The total net operating income is equal to total revenues of $1,193,012, less total expenses of $566,077 and recurring replacement costs of $55,800. S-32 995 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $344,942. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 98.63% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 571,000 Capitalization Rate......................................... 10.75% ----------- Gross valuation of partnership property..................... 5,313,000 Plus: Cash and cash equivalents............................. 10,388 Plus: Other partnership assets, net of security deposits.... 314,283 Less: Mortgage debt, including accrued interest............. (3,850,312) Less: Accounts payable and accrued expenses................. (62,657) Less: Other liabilities..................................... (731,150) ----------- Partnership valuation before taxes and certain costs........ 993,552 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (515,785) Less: Closing costs......................................... (132,825) ----------- Estimated net valuation of your partnership................. 344,942 Percentage of estimated net valuation allocated to holders of units.................................................. 98.63% ----------- Estimated net valuation of units............................ 340,231 Total number of units............................. 30.5 ----------- Estimated valuation per unit................................ 11,155 =========== Cash consideration per unit................................. $ 11,155 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $11,155 by the $25 liquidation preference of each Preferred OP Unit to get 446.25 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $11,155 by a price of $38.69 to get 288.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $344,942 or .06% is the net valuation of your partnership. S-33 996 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $67,000 for the nine months ended September 30, 1997 to $31,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 997 11. The estimated unit value of $11,155, based on a total estimated value of your partnership's property of $5,313,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $892.50 per year on the number of Preferred OP Units, or distributions of $721.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 998 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 999 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 11,155 Partnership preferred units................................. 11,155(1) Partnership common units.................................... 11,155(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 11,155 Estimated going concern value............................. $ 2,506 Net book value (deficit).................................. $(79,615) Alternative going concern value........................... $ 4,649(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 1000 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) cash reserves; (vi) broker's commissions; and (vii) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $2,506 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due on November 15, 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $4,649 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $79,615 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-38 1001 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $5,810 per unit, going concern value of $5,426 per unit and liquidation value of $1,574 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(5,345), $(5,729) and $(9,581). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 98.63% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-39 1002 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $1,236,223 Operating Expenses.......................................... (593,364) Replacement Reserves -- Net................................. (158,692) Debt Service................................................ (408,312) Capital Expenditures........................................ (122,100) ---------- Net Cash Flow..................................... $ (46,245) ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to S-40 1003 the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-41 1004 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $515,785. Stanger observed that your partnership liquidation value of $344,942 was allocated 98.63% to limited partners and was divided by the total units outstanding of 30.5 to provide the liquidation value per unit of $11,155. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $571,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $35,000 per annum; (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.3%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 30.5 to achieve management's estimate of going concern value of $2,506 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $11,155 per unit is equal to management's estimate of liquidation value, and reflects a substantial premium to management's estimate of going concern value of $2,506. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third S-42 1005 year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.0%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5% Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 80% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $5,810, $5,426, and $1,574 representing (discounts) to the offer price of 48%, 51% and 86%. Stanger observed that these substantial discounts to the offer price are indicative of the substantial leverage and risk of the units in the partnership. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also S-43 1006 relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed S-44 1007 transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Catawba Club Associates, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 45 limited partners of your partnership and a total of 30.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1985 for the purpose of owning an apartment property located in Columbus, Ohio, known as "Catawba Club Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1975 and consists of 186 apartment units. There are 51 one-bedroom apartments, 119 two-bedroom apartments and 16 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 89.52% in 1998, 87.63% in 1997 and 87.63% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations for 1999 total $515,785 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, gutters and down spouts, heating, ventilation and air conditioning systems, siding trim facia/soffets, exterior paint, balconies and patios, foundations, sidewalks, drives and parking lots, landscaping and irrigation, and fences. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $506 $476 $447 $457 $445
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $99,297 of $1,769,990 of assessed valuation with a current yearly tax rate of 5.61%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 5.89% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. S-45 1008 INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 90% and $487, respectively, at December 31, 1998, compared to 88% and $506, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects rental rates to improve in the near future because planned improvements enhancing the appeal of the property. In addition, the general partner noted that it expects to spend approximately $515,785 for capital improvements at the property in 1999 to improve the property's roofing, gutters, heating, ventilation and air conditioning, siding, exterior paint, balconies, foundation repairs, parking lots, landscaping/irrigation and fences. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." S-46 1009 BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,600,402, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $130,106, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,996,400 of limited partnership units in 1985. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to your partnership or any limited partner for any acts or failures to do any act performed by any of them in the absence of their willful malfeasance or gross negligence. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for indemnification of the general partners by your partnership for any acts or omissions performed by them. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 1010 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions From 1993 through 1998 your partnership has paid no distributions. The original cost per unit was $39,928. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
PERCENTAGE OF NUMBER OF UNITS TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------- ------------ 1994.................................. 0.0 0.00% 0 1995.................................. 0.0 0.00% 0 1996.................................. 0.0 0.00% 0 1997.................................. 0.0 0.00% 0 1998.................................. 0.75 2.34% 2
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest in your partnership, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $28,044 1995........................................................ 38,456 1996........................................................ 33,620 1997........................................................ 33,815 1998........................................................ 24,729
S-48 1011 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ---- 1994........................................................ Not available 1995........................................................ $54,303 1996........................................................ 56,001 1997........................................................ 60,499 1998........................................................ 58,102
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 1012 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents....... $ 61,000 $ 53,000 $ 16,000 $ 38,000 $ 71,000 $ 86,000 $ 86,000 Land & Building................. 5,271,000 5,173,000 5,211,000 5,043,000 4,955,000 4,820,000 4,789,000 Accumulated Depreciation........ (3,534,000) (3,416,000) (3,445,000) (3,328,000) (3,219,000) (3,021,000) (2,745,000) Other Assets.................... 350,000 359,000 379,000 357,000 344,000 384,000 338,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets............ $ 2,148,000 $ 2,169,000 $ 2,161,000 $ 2,110,000 $ 2,151,000 $ 2,269,000 $ 2,468,000 =========== =========== =========== =========== =========== =========== =========== Notes Payable................... $ 4,028,000 $ 4,117,000 $ 4,097,000 $ 4,179,000 $ 4,254,000 $ 4,323,000 $ 4,386,000 Other Liabilities............... 517,000 452,000 492,000 388,000 776,000 703,000 632,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities....... $ 4,545,000 $ 4,589,000 $ 4,589,000 $ 4,576,000 $ 4,618,000 $ 4,613,000 $ 4,605,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners' Capital (Deficit)............. $(2,397,000) $(2,400,000) $(2,428,000) $(2,467,000) $(2,467,000) $(2,344,000) $(2,137,000) =========== =========== =========== =========== =========== =========== ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue.................. $ 820,000 $ 848,000 $ 1,130,000 $ 1,062,000 $ 997,000 $ 1,021,000 $ 993,000 Other Income.................... 56,000 47,000 66,000 76,000 84,000 68,000 71,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue........... $ 876,000 $ 895,000 $ 1,196,000 $ 1,138,000 $ 1,081,000 $ 1,089,000 $ 1,064,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses.............. $ 394,000 $ 378,000 $ 511,000 $ 491,000 $ 473,000 $ 475,000 $ 480,000 General & Administrative........ 36,000 29,000 42,000 43,000 41,000 36,000 57,000 Depreciation.................... 88,000 88,000 118,000 109,000 197,000 289,000 283,000 Interest Expense................ 251,000 257,000 390,000 398,000 404,000 410,000 424,000 Property Taxes.................. 76,000 76,000 96,000 97,000 88,000 87,000 88,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses.......... $ 845,000 $ 828,000 $ 1,157,000 $ 1,138,000 $ 1,203,000 $ 1,297,000 $ 1,332,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) before extraordinary items........... $ 31,000 $ 67,000 $ 39,000 $ -- $ (122,000) $ (209,000) $ (268,000) Extraordinary Items............. -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............... $ 31,000 $ 67,000 $ 39,000 $ -- $ (122,000) $ (209,000) $ (268,000) =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit.............. $ 1,006 $ 2,175 $ 1,266 $ -- $ (3,960) $ (6,751) $ (8,699) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit.............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== ===========
S-50 1013 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. Results of Operations COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Net Income Your Partnership recognized net income of $31,000 for the nine months ended September 30, 1998, compared to $67,000 for the nine months ended September 30, 1997. The decrease in net income of $36,000 was the result of a decrease in revenues, coupled with an increase in operating and general and administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the Partnership Property totaled $876,000 for the nine months ended September 30, 1998, compared to $895,000 for the nine months ended September 30, 1997, a decrease of $19,000, or 2.1%. The Partnership increased rental rates by an average of 3.3%; however, occupancy decreased 4% to 89%. The increase in Other Income of $9,000 was due primarily to higher laundry income and late charges assessed. Expenses Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $394,000 for the nine months ended September 30, 1998, compared to $378,000 for the nine months ended September 30, 1997, an increase of $16,000, due primarily to higher advertising costs in efforts to increase occupancy. Partnership Property management expenses totaled $43,000 for the nine months ended September 30, 1998, compared to $45,000 for the nine months ended September 30, 1997, a decrease of $2,000. This increase was primarily the result of the decrease in rental revenues, as management fees are calculated based on a percentage of revenue. General and Administrative Expense General and administrative expenses increased $7,000 to $36,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher partnership administrative expenses and asset management fees. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 Net Income Your partnership recognized net income of $38,586 for the year ended December 31, 1997, compared to $206 for the year ended December 31, 1996. The increase in net income of $38,380, was primarily the result of an increase in rental revenues offset by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. S-51 1014 Revenues Rental and other property revenues from the partnership's property totaled $1,195,681 for the year ended December 31, 1997, compared to $1,137,701 for the year ended December 31, 1996, an increase of $57,980, or 5.1%. The increase is due to a 3% increase in market rent, and a 2% increase in the occupancy rate to 90% in 1997. Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $511,450 for the year ended December 31, 1997, compared to $490,711 for the year ended December 31, 1996, an increase of $20,739 or 4.2%. The increase is due to a 2% increase in the occupancy rate to 90% in 1997. Management expenses totaled $60,499 for the year ended December 31, 1997, compared to $56,001 for the year ended December 31, 1996, an increase of $4,498, or 8.0%. The increase resulted from an increase in rental revenues. General and Administrative Expenses General and administrative expenses totaled $41,726 for the year ended December 31, 1997 compared to $42,772 for the year ended December 31, 1996, a decrease of $1,046 or 2.5%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $389,906 for the year ended December 31, 1997, compared to $398,035 for the year ended December 31, 1996, a decrease of $8,129, or 2.0%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 Net Income Your partnership recognized net income of $206 for the year ended December 31, 1996, compared to a net loss of $122,166 for the year ended December 31, 1995. The increase in net income of $122,372 was primarily the result of increased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,137,701 for the year ended December 31, 1996, compared to $1,081,245 for the year ended December 31, 1995, an increase of $56,456, or 5.2%. The increase can be attributed to an increase in rental rates of 6% as a result of offering corporate apartments, offset by a lower occupancy rate (decrease of 3%), and a decrease in cleaning and damage fees. Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $490,711 for the year ended December 31, 1996, compared to $472,940 for the year ended December 31, 1995, an increase of $17,771 or 3.8%. Operating expenses increased due to higher electrical bills while apartments were being repaired for flood damage, and higher maintenance salaries. Other increases were due to incentives and concessions to increase occupancy. Management expenses totaled $56,001 for the year ended December 31, 1996, compared to $54,303 for the year ended December 31, 1995, an increase of $1,698, or 3.1%. S-52 1015 General and Administrative Expenses General and administrative expenses totaled $42,772 for the year ended December 31,1996 compared to $41,487 for the year ended December 31, 1995, an increase of $1,285 or 3.1%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $398,035 for the year ended December 31, 1996, compared to $403,893 for the year ended December 31, 1995, a decrease of $5,858, or 1.5%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Depreciation Expense Depreciation expense decreased from 1995 to 1996 by $88,756, primarily due to a large asset becoming fully depreciated in 1995. Liquidity and Capital Resources As of September 30, 1998, Your Partnership had $61,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $146,000, was $3,761,000. The mortgages require monthly payments of approximately $34,000 until November, 2002, at which time a balloon payment of approximately $3,311,000 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. In addition, the Partnership has an unsecured promissory note to an affiliate of the General Partner, which matured in November, 1997. Management is currently attempting to refinance the note. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. The General Partner is attempting to refinance the existing debt. The General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from these uncertainties. S-53 1016 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 30.5 units of your partnership (up to 7.63 units) for consideration per unit of (i) 446.25 Preferred OP Units, (ii) 288.50 Common OP Units, or (iii) $11,155 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO S-54 1017 CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 1018 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 1019 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 1020 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 1021 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 1022 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 1023 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 1024 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 1025 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 1026 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 1027 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 1028 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 1029 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 1030 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 1031 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 1032 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 1033 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Available Cash Flow (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2008. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating purchase, hold, lease, manage and operate Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your part- partnership organized pursuant to the nership's agreement of limited partnership, Delaware Revised Uniform Limited Part- your partnership may perform all acts nership Act (as amended from time to time, necessary or appropriate in connection or any successor to such statute) (the therewith and reasonably related thereto, "Delaware Limited Partnership Act"), including borrowing money and creating provided that such business is to be liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 1034 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 30 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership specifies certain contracts to contribute funds or other assets to its be entered into with the general partner and subsidiaries or other persons in which it its affiliates and the compensa- has an equity investment,
S-72 1035 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tion to be paid under such contracts. In and such persons may borrow funds from the addition, the general partner may loan your AIMCO Operating Partnership, on terms and partnership such additional sums as the conditions established in the sole and general partners deems appropriate and absolute discretion of the general partner. necessary for the conduct of your To the extent consistent with the business partnership's business. Such loans by the purpose of the AIMCO Operating Partnership general partner or its affiliates will be and the permitted activities of the general upon such terms and for such maturities as partner, the AIMCO Operating Partnership may the general partner deems reasonable and transfer assets to joint ventures, limited will bear interest at a rate the greater of liability companies, partnerships, 2 1/2% over the base rate then being charged corporations, business trusts or other by Third National Bank in Nashville, business entities in which it is or thereby Tennessee or the actual cost to such lender becomes a participant upon such terms and to borrow such funds and the terms thereof subject to such conditions consistent with as to security and other charges or fees the AIMCO Operating Partnership Agreement will be at least as favorable to your and applicable law as the general partner, partnership as those negotiated by in its sole and absolute discretion, unaffiliated lenders on com- believes to be advisable. Except as parable loans for the same purpose in the expressly permitted by the AIMCO Operating same locale. Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in the ordinary contains no restrictions on borrowings, and course of business and in connection with the general partner has full power and certain loans specified in your authority to borrow money on behalf of the partnership's agreement of limited AIMCO Operating Partnership. The AIMCO partnership, which includes loans secured by Operating Partnership has credit agreements your partnership's property. However, except that restrict, among other things, its for such loans specified in your ability to incur indebtedness. partnership's agreement of limited partnership, the limited partners owning 51% of the outstanding units must approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partners may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all limited partner at the Unitholder's own expense, to obtain a principal office of the general partner in current list of the name and last known Tennessee at all reasonable times. business, residence or mailing address of the general partner and each other OP Unitholder.
S-73 1036 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The management and control of your All management powers over the business and partnership and its business and affairs affairs of the AIMCO Operating Partnership rests exclusively with the general partners, are vested in AIMCO-GP, Inc., which is the which have all the rights and power which general partner. No OP Unitholder has any may be possessed by general partners pursu- right to participate in or exercise control ant to applicable law or are necessary, or management power over the business and advisable or convenient to the discharge of affairs of the AIMCO Operating Partner- its duties under your partnership's ship. The OP Unitholders have the right to agreement of limited partnership. Limited vote on certain matters described under partners may not take part in or interfere "Comparison of Your Units and AIMCO OP with conduct or control of the business of Units -- Voting Rights" below. The general your partnership and have no right or partner may not be removed by the OP authority to act for or bind your Unitholders with or without cause. partnership in any manner, except that limited partners may exercise the voting and In addition to the powers granted a general other rights provided in your partnership's partner of a limited partnership under agreement of limited partnership and under applicable law or that are granted to the applicable law. general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts or failures to do any act performed by losses sustained, liabilities incurred or it in the absence of its willful malfeasance benefits not derived as a result of errors or gross negligence. Your partnership's in judgment or mistakes of fact or law of agreement of limited partnership does not any act or omission if the general partner provide for indemnification of the general acted in good faith. The AIMCO Operating partner by your partnership for any acts or Partnership Agreement provides for omissions performed by it. indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous
S-74 1037 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause after the business and affairs of the AIMCO giving notice to such general partner upon a Operating Partnership. The general partner vote of the limited partners owning at least may not be removed as general partner of the 67% of the outstanding units. A general AIMCO Operating Partnership by the OP partner may resign with the approval of the Unitholders with or without cause. Under the limited partners owning at least 51% of the AIMCO Operating Partnership Agreement, the outstanding units upon the giving of notice general partner may, in its sole discretion, to any remaining general partner and the prevent a transferee of an OP Unit from limited partners. All the limited partners becoming a substituted limited partner must approve the election of a substitute pursuant to the AIMCO Operating Partnership general partner. A limited partner may not Agreement. The general partner may exercise transfer his interests without the written this right of approval to deter, delay or consent of the general partners which may be hamper attempts by persons to acquire a withheld at the sole discretion of the controlling interest in the AIMCO Operating general partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add Agreement,
S-75 1038 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP representations, duties or obligations of whereby the general partner may, without the the general partner or its affiliates or consent of the OP Unitholders, amend the surrender any right or power granted to the AIMCO Operating Partnership Agreement, general partners or their affiliates in your amendments to the AIMCO Operating partnership's agreement of limited part- Partnership Agreement require the consent of nership for the benefit of the limited the holders of a majority of the outstanding partners; to cure any ambiguity; to correct Common OP Units, excluding AIMCO and certain or supplement any provision which may be other limited exclusions (a "Majority in inconsistent with any other provision Interest"). Amendments to the AIMCO provided that the general partner receive an Operating Partnership Agreement may be opinion of counsel that such amendment does proposed by the general partner or by not adversely affect the rights of the holders of a Majority in Interest. Following limited partners; and to admit additional or such proposal, the general partner will substitute limited partners. Any other submit any proposed amendment to the OP amendments to your partnership's agreement Unitholders. The general partner will seek of limited partnership must be approved by the written consent of the OP Unitholders on the limited partners owning 67% of the the proposed amendment or will call a units. The general partner must submit a meeting to vote thereon. See "Description of written statement of the proposed amendment OP Units -- Amendment of the AIMCO Operating together with their recommendation as to Partnership Agreement" in the accompanying such proposed amendment. For the purposes of Prospectus. obtaining the consent of the limited partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses is partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fees for its services as general its capacity as general partner of the AIMCO partner. However, the general partner or Operating Partnership. In addition, the certain of its affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for services rendered outside for all expenses incurred relating to the of its capacity as general partner. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, except as provided gross negligence, no OP Unitholder has under applicable law, a limited partner is personal liability for the AIMCO Operating not bound by or personally liable for the Partnership's debts and obligations, and expenses, liabilities or obligations of your liability of the OP Unitholders for the partnership in excess of such limited AIMCO Operating Partnership's debts and partners' capital contribution, including obligations is generally limited to the any deferred payment to be made by such amount of their investment in the AIMCO limited partner for its units, and any Operating Partnership. However, the mandatory assessments provided for in your limitations on the liability of limited partnership's agreement of limited partners for the obligations of a limited partnership which may partnership
S-76 1039 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP be levied against those limited partners who have not been clearly established in some do not pay for issued units entirely in cash states. If it were determined that the AIMCO at the time of issuance. Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must manage and control your partnership, generally requires a general partner of a and its business and affairs to the best of Delaware limited partnership to adhere to its abilities and must use its best efforts fiduciary duty standards under which it owes to carry out the business of your its limited partners the highest duties of partnership. The general partner must devote good faith, fairness and loyalty and which itself to the business of your partnership generally prohibit such general partner from to the extent that it, in its discretion, taking any action or engaging in any deems necessary for the efficient carrying transaction as to which it has a conflict of on thereof. The general partner must act as interest. The AIMCO Operating Partnership a fiduciaries with respect to the Agreement expressly authorizes the general safekeeping and use of the funds and assets partner to enter into, on behalf of the of your partnership. However, the general AIMCO Operating Partnership, a right of partner may engage in whatever activities it first opportunity arrangement and other chooses, whether or not it is competitive conflict avoidance agreements with various with your partnership, without having or affiliates of the AIMCO Operating incurring any obligation to offer any Partnership and the general partner, on such interest in such activities to your partner- terms as the general partner, in its sole ship or any limited partner. and absolute discretion, believes are advisable. The AIMCO Operating Partnership In general, your partnership's agreement of Agreement expressly limits the liability of limited partnership and the AIMCO Operating the general partner by providing that the Partnership Agreement have limitations on general partner, and its officers and the liability of the general partner but directors will not be liable or accountable such limitations differ and provide more in damages to the AIMCO Operating protection for the general partner of the Partnership, the limited partners or as- AIMCO Operating Partnership. signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income
S-77 1040 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each
S-78 1041 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS terests entitling each partner to holder of Preferred OP Units, when OP Unitholder to such partner's its pro rata share of and as declared by the board of pro rata share of cash distribu- distributions to be made to the directors of the general partner tions made from Available Cash (as partners of your partnership. of the AIMCO Operating Part- such term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the vote of the AIMCO Operating Partnership OP Unitholders have voting limited partners owning 51% Agreement, the holders of rights only with respect to of the outstanding units is the Preferred OP Units will certain limited matters such necessary to change the have the same voting rights as certain amendments and nature of your partnership's as holders of the Common OP termination of the AIMCO business and approve or Units. See "Description of Operating Partnership disapprove the sale of all OP Units" in the accompany- Agreement and certain or substantially all of the ing Prospectus. So long as transactions such as the assets of your partnership. any Preferred OP Units are institution of bankruptcy The consent of the holders outstanding, in addition to proceedings, an assignment of at least 67% of the any other vote or consent of for the benefit of creditors outstanding units is re- partners required by law or and certain transfers by the quired to remove a general by the AIMCO Operating general partner of its partner, amend your Partnership Agreement, the interest in the AIMCO partnership's agreement of affirmative vote or consent Operating Partnership or the limited partnership and to of holders of at least 50% admission of a successor dissolve your partnership of the outstanding Preferred general partner. before its term expires. All OP Units will be necessary limited partners must for effecting any amendment Under the AIMCO Operating approve the election of a of any of the provisions of Partnership Agreement, the substitute general partner. the Partnership Unit general partner has the Designation of the Preferred power to effect the A general partner may cause OP Units that materially and acquisition, sale, transfer, the dissolution of the your adversely affects the rights exchange or other partnership by retiring when or preferences of the disposition of any assets of there are no remaining holders of the Preferred OP the AIMCO Operating general partners unless, Units. The creation or Partnership (including, but within ninety days, all of issuance of any class or not limited to, the exercise the limited partners elect a series of partnership units, or grant of any conversion, new general partner to including, without option, privilege or continue the business of limitation, any partner- subscription right or any your partnership, in ship units that may have other right available in reconstituted form if rights senior or superior to connection with any assets necessary. the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) In general, you have greater materially adversely affect or the merger, voting rights in your the consolidation, partnership than you will reorganization or have as an
S-79 1042 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholder. OP rights or preferences of the other combination of the Unitholders can not remove holders of Preferred OP AIMCO Operating Partnership the general partner of the Units. With respect to the with or into another entity, AIMCO Operating Partnership. exercise of the above all without the consent of described voting rights, the OP Unitholders. each Preferred OP Units shall have one (1) vote per The general partner may Preferred OP Unit. cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
S-80 1043 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of the Available at the rate of $0.50 per or such portion as the Cash Flow will be made in Preferred OP Unit; provided, general partner may in its quarterly installments however, that at any time sole and absolute discretion within 45 days after the end and from time to time on or determine, of Available Cash of such quarter or at such after the fifth anniversary (as defined in the AIMCO time or times as the general of the issue date of the Operating Partnership partner deems practical. The Preferred OP Units, the Agreement) generated by the distributions payable to the AIMCO Operating Partnership AIMCO Operating Partnership partners are not fixed in may adjust the annual during such quarter to the amount and depend upon the distribution rate on the general partner, the special operating results and net Preferred OP Units to the limited partner and the sales or refinancing lower of (i) 2.00% plus the holders of Common OP Units proceeds available from the annual interest rate then on the record date es- disposition of your applicable to U.S. Treasury tablished by the general partnership's assets. notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special limited partner original issue. Holders of and holders of Common OP Preferred OP Units will not Units with respect to be entitled to receive any distributions of Available distributions in excess of Cash, distributions upon cumulative distributions on liquidation or other the Preferred OP Units. No distributions. See "Per interest, or sum of money in Share and Per Unit Data" in lieu of interest, shall be the accompanying Prospectus. payable in respect of any distribution payment or pay- The general partner in its ments on the Preferred OP sole and absolute discretion Units that may be in may distribute to the OP arrears. Unitholders Available Cash on a more frequent basis and When distributions are not provide for an appropriate paid in full upon the record date. Preferred OP Units or any Parity Units (as defined The AIMCO Operating Partner- below), all distributions ship Agreement requires the declared upon the Preferred general partner to take such OP Units and any Parity reasonable efforts, as Units shall be declared determined by it in its sole ratably in proportion to the and absolute discretion and respective amounts of consistent with distributions accumulated, accrued and unpaid on the Preferred OP Units and such Parity
S-81 1044 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Units. Unless full AIMCO's qualification as a cumulative distributions on REIT, to cause the AIMCO the Preferred OP Units have Operating Partnership to been declared and paid, distribute sufficient except in limited circum- amounts to enable the stances, no distributions general partner to transfer may be declared or paid or funds to AIMCO and enable set apart for payment by the AIMCO to pay stockholder AIMCO Operating Partnership dividends that will (i) and no other distribution of satisfy the requirements for cash or other property may qualifying as a REIT under be declared or made, the Code and the Treasury directly or indirectly, by Regulations and (ii) avoid the AIMCO Operating any Federal income or excise Partnership with respect to tax liability of AIMCO. See any Junior Units (as de- "Description of OP fined below), nor shall any Units -- Distributions" in Junior Units be redeemed, the accompanying Prospectus. purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such transferee and the Preferred OP Units Operating Partnership will become a substituted are not listed on any Agreement restricts the limited partner if: (1) the securities exchange. The transferability of the OP transfer is not in respect Preferred OP Units are Units. Until the expiration of fractional units, except subject to restrictions on of one year from the date on in limited circumstances, transfer as set forth in the which an OP Unitholder (2) the assignor and AIMCO Operating Partnership acquired OP Units, subject assignee execute, Agreement. to certain exceptions, such acknowledge and deliver OP Unitholder may not instruments of transfer Pursuant to the AIMCO transfer all or any por- satisfactory to the general Operating Partnership tion of its OP Units to any partner, (3) the transferor Agreement, until the transferee without the pays a transfer fee, (4) the expiration of one year from consent of the general general partner consents, the date on which a holder partner, which consent may which consent will be of Preferred OP Units be withheld in its sole and withheld if, among other acquired Preferred OP Units, absolute discretion. After reasons, the transfer subject to certain the expiration of one year, violates Federal or state exceptions, such holder of such OP Unitholder has the securities laws or results Preferred OP Units may not right to transfer all or any in the termination of your transfer all or any portion portion of its OP Units to partnership for tax purposes of its Preferred OP Units to any person, subject to the and (5) the assignor and any transferee without the satisfaction of certain con- assignee have complied with consent of the general ditions specified in the such other conditions as set partner, which consent may AIMCO Operating Partnership forth in your partnership's be withheld in its sole and Agreement, including the agreement of limited absolute discretion. After general partner's right of partnership. the expiration of one year, first refusal. See such holders of Preferred OP "Description of OP Units -- There are no redemption Units has the rights associated with your units.
S-82 1045 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS right to transfer all or any Transfers and Withdrawals" portion of its Preferred OP in the accompanying Units to any person, subject Prospectus. to the satisfaction of certain conditions specified After the first anniversary in the AIMCO Operating of becoming a holder of Partnership Agreement, Common OP Units, an OP including the general Unitholder has the right, partner's right of first subject to the terms and refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 1046 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 1047 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 1048 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 1049 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 1050 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 1051 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 1052 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 1053 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 1054 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 1055 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The property manager received management fees of $56,001 in 1996, $60,499 in 1997 and $58,102 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 1056 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $85,057 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a of Bank of America's reference rate, at the election of the Company, plus, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 1057 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Catawba Club Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1997 financial statements contains an explanatory paragraph that states that the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. S-95 1058 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 1059 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 61,000 Receivables and Deposits.................................... 89,000 Restricted Escrows.......................................... 205,000 Other Assets................................................ 56,000 Investment Property Land...................................................... $ 330,000 Building and related personal property.................... 4,941,000 ----------- 5,271,000 Less: Accumulated Depreciation............................ (3,534,000) 1,737,000 ----------- ----------- Total Assets:..................................... $ 2,148,000 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 92,000 Other Accrued Liabilities................................... 25,000 Property Taxes Payable...................................... 76,000 Accrued Interest Payable.................................... 305,000 Tenant Security Deposits.................................... 19,000 Notes Payable............................................... 4,028,000 Partners' Deficit........................................... (2,397,000) ----------- Total Liabilities and Partners' Deficit........... $ 2,148,000 ===========
See notes to interim financial statements F-2 1060 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- Revenues: Rental income............................................. $820,000 $848,000 Other income.............................................. 56,000 47,000 -------- -------- Total Revenues.................................... 876,000 895,000 Expenses: Operating Expenses........................................ 394,000 378,000 General and administrative expenses....................... 36,000 29,000 Depreciation expense...................................... 88,000 88,000 Interest expense.......................................... 251,000 257,000 Property tax expense...................................... 76,000 76,000 -------- -------- Total Expenses:................................... 845,000 828,000 -------- -------- Net income........................................ $ 31,000 $ 67,000 ======== ========
See notes to interim financial statements F-3 1061 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) SEPTEMBER 30, 1998 AND 1997
NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- Operating Activities: Net income................................................ $ 31,000 $ 67,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 122,000 121,000 Changes in accounts: Receivables and deposits and other assets............ 24,000 (23,000) Accounts payable and accrued expenses................ 24,000 54,000 -------- --------- Net cash provided by operating activities......... 201,000 219,000 -------- --------- Investing Activities: Property improvements and replacements.................... (60,000) (130,000) Net (increase)/decrease in restricted escrows............. (7,000) 8,000 -------- --------- Net cash used in investing activities............. (67,000) (122,000) -------- --------- Financing Activities: Payments on mortgage...................................... (89,000) (83,000) -------- --------- Net cash used in financing activities............. (89,000) (83,000) -------- --------- Net increase in cash and cash equivalents......... 45,000 15,000 Cash and cash equivalents at beginning of year.............. 16,000 38,000 -------- --------- Cash and cash equivalents at end of period.................. $ 61,000 $ 53,000 ======== =========
See notes to interim financial statements F-4 1062 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPT. 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Catawba Club Associates, Limited as of Sept. 30, 1998 and for the nine months ended Sept. 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 1063 CATAWBA CLUB ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 1064 INDEPENDENT AUDITORS' REPORT General Partners Catawba Club Associates, Limited: We have audited the accompanying balance sheets of Catawba Club Associates, Limited as of December 31, 1997 and 1996 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catawba Club Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 23, 1998 F-7 1065 CATAWBA CLUB ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 15,545 $ 37,698 Receivables and deposits.................................... 109,356 74,817 Restricted escrows (Note B)................................. 198,024 204,220 Other assets................................................ 71,850 78,156 Investment properties (Note C): Land...................................................... 300,000 300,000 Buildings and related personal property................... 4,911,293 4,743,062 ----------- ----------- 5,211,293 5,043,062 Less accumulated depreciation............................. (3,445,304) (3,327,626) ----------- ----------- 1,765,989 1,715,436 ----------- ----------- $ 2,160,764 $ 2,110,327 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 67,812 $ 14,070 Tenant security deposit liabilities....................... 22,759 27,395 Accrued taxes............................................. 96,198 96,276 Other liabilities (Note C)................................ 305,568 259,905 Notes payable (Note C).................................... 4,096,685 4,179,525 Partners' deficit........................................... (2,428,258) (2,466,844) ----------- ----------- $ 2,160,764 $ 2,110,327 =========== ===========
See Accompanying Notes to Financial Statements F-8 1066 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,129,839 $ 1,061,661 Other income.............................................. 65,842 76,040 ----------- ----------- Total revenues.................................... 1,195,681 1,137,701 ----------- ----------- Expenses: Operating (Note D)........................................ 511,450 490,711 General and administrative (Note D)....................... 41,726 42,772 Depreciation.............................................. 117,678 108,702 Interest.................................................. 389,906 398,035 Property taxes............................................ 96,335 97,275 ----------- ----------- Total expenses.................................... 1,157,095 1,137,495 ----------- ----------- Net income........................................ 38,586 206 Partners' deficit at beginning of year...................... (2,466,844) (2,467,050) ----------- ----------- Partners' deficit at end of year............................ $(2,428,258) $(2,466,844) =========== ===========
See Accompanying Notes to Financial Statements F-9 1067 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 38,586 $ 206 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 117,678 108,702 Amortization of discounts and loan costs............... 41,433 41,433 Change in accounts: Receivables and deposits............................. (34,539) (3,596) Other assets......................................... (6,904) -- Accounts payable..................................... 53,742 (32,408) Tenant security deposit liabilities.................. (4,636) 3,884 Accrued taxes........................................ (78) 9,660 Other liabilities.................................... 45,663 52,861 --------- --------- Net cash provided by operating activities......... 250,945 180,742 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (168,231) (88,054) Deposits to restricted escrows............................ (8,139) (8,129) Receipts from restricted escrows.......................... 14,335 8,367 --------- --------- Net cash used in investing activities............. (162,035) (87,816) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (111,063) (102,959) --------- --------- Net cash used in financing activities............. (111,063) (102,959) --------- --------- Net decrease in cash and cash equivalents......... (22,153) (10,033) Cash and cash equivalents at beginning of year.............. 37,698 47,731 --------- --------- Cash and cash equivalents at end of year.................... $ 15,545 $ 37,698 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 297,249 $ 305,353 ========= =========
See Accompanying Notes to Financial Statements F-10 1068 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Catawba Club Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 28, 1985. The Partnership owns and operates a 186 unit apartment complex, Catawba Club Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets as depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $64,946 and $78,156, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 1069 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1997 and any excess funds were returned for property operations................................................ $ -- $ 14,335 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 198,024 189,885 -------- -------- $198,024 $204,220 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $33,202, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,720,207 $3,831,270 Second mortgage note payable in interest only monthly installments of $824, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 130,106 130,106 Unsecured 12.5% promissory note payable to the Jacques-Miller Income Fund II, an affiliate, matured November 1997; monthly payments of interest only and payments of excess cash flows in February of each year as defined in the note agreement............................. 412,606 412,606 ---------- ---------- Principal balance at year end............................... 4,262,919 4,373,982 Less unamortized discount................................... (166,234) (194,457) ---------- ---------- $4,096,685 $4,179,525 ========== ==========
Accrued interest on the note payable to the Jacques-Miller Income Fund II ("JMIF II"), which is included in other liabilities, was $266,905 and $215,329 at December 31, 1997 and 1996, respectively. Management is currently attempting to refinance the Partnership's unsecured note in order to obtain the funds necessary to satisfy the note payable to Jacques-Miller Income Fund II. The refinancing is expected to occur during the second quarter of 1998; however, there is not assurance that such a refinancing will occur. F-12 1070 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the notes during the years subsequent to December 31, 1997, including $412,606 in 1998 for the JMIF II debt, which matured in 1997, are as follows: 1998..................................................... $ 532,410 1999..................................................... 129,234 2000..................................................... 139,405 2001..................................................... 150,376 2002..................................................... 3,311,494 ---------- $4,262,919 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee............................................ $60,499 $56,001 Partnership administration fee............................ $10,791 $10,791 Reimbursement for services of affiliates.................. $23,024 $22,829 Reimbursement for construction oversight costs............ $ -- $ 196
NOTE E -- GOING CONCERN The General Partner is attempting to refinance the existing debt. The General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from these uncertainties. F-13 1071 CATAWBA CLUB ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 1072 INDEPENDENT AUDITORS' REPORT General Partners Catawba Club Associates, Limited: We have audited the accompanying balance sheets of Catawba Club Associates, Limited as of December 31, 1996 and 1995 and the related statements of operations and changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catawba Club Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 1, 1997 F-15 1073 CATAWBA CLUB ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 37,698 $ 47,731 Restricted -- tenant security deposits.................... 27,395 23,511 Accounts receivable......................................... 3,049 3,961 Escrow for taxes............................................ 44,373 43,749 Restricted escrows (Note B)................................. 204,220 204,458 Other assets................................................ 78,156 91,366 Investment properties (Note C): Land...................................................... 300,000 300,000 Buildings and related personal property................... 4,743,062 4,655,008 ----------- ----------- 5,043,062 4,955,008 Less accumulated depreciation............................. (3,327,626) (3,218,924) ----------- ----------- 1,715,436 1,736,084 ----------- ----------- $ 2,110,327 $ 2,150,860 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 14,070 $ 46,478 Tenant security deposits.................................. 27,395 23,511 Accrued taxes............................................. 96,276 86,616 Other liabilities (Note C)................................ 259,905 207,044 Notes payable (Note C).................................... 4,179,525 4,254,261 Partners' deficit........................................... (2,466,844) (2,467,050) ----------- ----------- $ 2,110,327 $ 2,150,860 =========== ===========
See Accompanying Notes to Financial Statements F-16 1074 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,061,661 $ 997,400 Other income.............................................. 76,040 83,845 ----------- ----------- Total revenues.................................... 1,137,701 1,081,245 ----------- ----------- Expenses: Operating (Note D)........................................ 365,106 343,870 General and administrative (Note D)....................... 42,772 41,487 Maintenance............................................... 125,605 129,070 Depreciation.............................................. 108,702 197,458 Interest.................................................. 398,035 403,893 Property taxes............................................ 97,275 87,633 ----------- ----------- Total expenses.................................... 1,137,495 1,203,411 ----------- ----------- Net income (loss)................................. 206 (122,166) Partners' deficit at beginning of year...................... (2,467,050) (2,344,884) ----------- ----------- Partners' deficit at end of year............................ $(2,466,844) $(2,467,050) =========== ===========
See Accompanying Notes to Financial Statements F-17 1075 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 206 $(122,166) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 108,702 197,458 Amortization of discounts and loan costs............... 41,433 40,168 Change in accounts: Restricted cash...................................... (3,884) 2,820 Accounts receivable.................................. 912 (438) Escrow for taxes..................................... (624) 7,143 Accounts payable..................................... (32,408) 20,002 Tenant security deposit liabilities.................. 3,884 (2,426) Accrued taxes........................................ 9,660 1,113 Other liabilities.................................... 52,861 54,500 --------- --------- Net cash provided by operating activities......... 180,742 198,174 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (88,054) (134,608) Deposits to restricted escrows............................ (8,129) (7,853) Receipts from restricted escrows.......................... 8,367 28,073 --------- --------- Net cash used in investing activities............. (87,816) (114,388) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (102,959) (95,488) --------- --------- Net cash used in financing activities............. (102,959) (95,448) --------- --------- Net decrease in cash and cash equivalents......... (10,033) (11,662) Cash and cash equivalents at beginning of year.............. 47,731 59,393 --------- --------- Cash and cash equivalents at end of year.................... $ 37,698 $ 47,731 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 305,353 $ 312,864 ========= =========
See Accompanying Notes to Financial Statements F-18 1076 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Catawba Club Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 28, 1985. The Partnership owns and operates a 186 unit apartment complex, Catawba Club Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 1077 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements are anticipated to be completed in calendar year 1997 and any excess funds will be returned for property operations................................... $ 14,335 $ 14,159 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 189,885 190,299 -------- -------- $204,220 $204,458 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $33,202, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,831,270 $3,934,229 Second mortgage note payable in interest only monthly installments of $824, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 130,106 130,106 Unsecured 12.5% promissory note payable to the Jacques-Miller Income Fund II, an affiliate, due November 1997; monthly payments of interest only and payments of excess cash flows in February of each year as defined in the note agreement........................................ 412,606 412,606 ---------- ---------- Principal balance at year end............................... 4,373,982 4,476,941 Less unamortized discount................................... (194,457) (222,680) ---------- ---------- $4,179,525 $4,254,261 ========== ==========
Accrued interest on the note payable to the Jacques-Miller Income Fund II, which is included in other liabilities, was $215,329 and $163,753 at December 31, 1996 and 1995, respectively. Scheduled principal payments of the notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 523,670 1998..................................................... 119,804 1999..................................................... 129,234 2000..................................................... 139,405 2001..................................................... 150,376 Thereafter............................................... 3,311,493 ---------- $4,373,982 ==========
F-20 1078 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time without penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee............................................ $56,001 $54,335 Partnership administration fee............................ $10,791 $10,817 Reimbursement for services of affiliates.................. $22,829 $21,751 Reimbursement for construction oversight costs............ $ 196 $ 5,888
F-21 1079 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1080 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1081 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1082 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1083 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1084 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1085 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1086 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1087 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1088 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1089 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1090 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1091 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1092 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1093 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1094 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1095 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1096 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1097 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1098 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1099 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1100 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1101 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1102 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1103 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1104 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1105 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1106
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1107 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1108
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1109 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1110 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1111 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1112
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1113 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1114 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1115 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1116
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1117 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1118 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1119 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 1120 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 1121 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 1122 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 1123 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 1124 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 1125 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 1126 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 1127 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 1128 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 1129 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Catawba Club Associates, L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Catawba Club Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $11,155 in cash, or 288.50 Common OP Units of the Purchaser, or 446.25 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 1130 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 1131 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 1132 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 1133
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 1134
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 1135
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 1136
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1137 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 1138 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Cedar Tree Investors Limited Partnership in exchange for your choice of: 2,211.75 of our 8.0% Class Two Partnership Preferred Units; 1,429.25 of our Partnership Common Units; or $55,289 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $55,289 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 1139 TABLE OF CONTENTS
PAGE ---- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-11 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Cedar Tree Investors Limited Partnership.............. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ---- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 Overview..................................... S-51 Results of Operations........................ S-51 THE OFFER...................................... S-53 Terms of the Offer; Expiration Date.......... S-53 Acceptance for Payment and Payment for Units...................................... S-53 Procedure for Tendering Units................ S-54 Withdrawal Rights............................ S-57 Extension of Tender Period; Termination; Amendment.................................. S-57
i 1140
PAGE ---- Proration.................................... S-58 Fractional OP Units.......................... S-58 Future Plans of the AIMCO Operating Partnership................................ S-58 Voting by the AIMCO Operating Partnership.... S-59 Dissenters' Rights........................... S-59 Conditions of the Offer...................... S-59 Effects of the Offer......................... S-62 Certain Legal Matters........................ S-62 Fees and Expenses............................ S-64 Accounting Treatment......................... S-64 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-65 Tax Consequences of Exchanging Units Solely for OP Units............................... S-65 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-66 Tax Consequences of Exchanging Units Solely for Cash................................... S-66 Disguised Sale Treatment..................... S-66 Adjusted Tax Basis........................... S-67 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-67 Passive Activity Losses...................... S-67 Tax Reporting................................ S-68 Foreign Offerees............................. S-68 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-68 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-70 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-83 General...................................... S-83 Ranking...................................... S-83
PAGE ---- Distributions................................ S-83 Allocation................................... S-84 Liquidation Preference....................... S-84 Redemption................................... S-85 Voting Rights................................ S-85 Restrictions on Transfer..................... S-86 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-86 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-88 CONFLICTS OF INTEREST.......................... S-92 Conflicts of Interest with Respect to the Offer...................................... S-92 Conflicts of Interest that Currently Exist for Your Partnership....................... S-92 Competition Among Properties................. S-92 Features Discouraging Potential Takeovers.... S-92 Future Exchange Offers....................... S-92 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-93 LEGAL MATTERS.................................. S-94 EXPERTS........................................ S-94 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1141 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, United Investors Real Estate, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $10,000,000, less approximately $151,100 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 1142 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 1143 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2021 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $4,423.50 per year on the number of Preferred OP Units, or distributions of $3,590.63 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 1144 partnership's units. During 1998, your partnership paid cash distributions of $14,640 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 1145 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, S-5 1146 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in September 2008. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may S-6 1147 receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $14,640 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,423.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $14,640 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,573.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the class of preferred stock you may receive. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 1148 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 1149 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 6.43% per annum, which resulted in a decrease from the initial capitalization rate of 0.15%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.38%, resulting in a final capitalization rate of 9.72%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 972,000 Capitalization rate......................................... 9.72% Estimated total gross valuation of your partnership's property.................................................. $10,000,000 Plus: Cash and cash equivalents............................. (500,054) Plus: Other partnership assets, net of security deposits.... 353,530 Less: Mortgage debt......................................... (4,647,993) Less: Accounts payable and accrued expenses................. (134,277) Less: Other liabilities..................................... (74,723) Partnership valuation before taxes and certain costs........ 4,996,483 Less: Disposition fees...................................... (300,000) Less: Extraordinary capital expenditures for deferred maintenance............................................... (151,100) Less: Closing costs......................................... (250,000) Estimated net valuation of your partnership................. 4,295,383 Percentage of estimated net valuation allocated to units.... 96.54% Estimated net valuation of units............................ 4,146,680 Total number of units............................. 75.0 Estimated valuation per unit................................ 55,289 ----------- Cash consideration per unit................................. $ 55,289 -----------
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $55,289 by the $25 liquidation preference of each Preferred OP Unit to get 2,211.75 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $55,289 by a price of $38.69 to get 1,429.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 1150 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $55,289 Partnership Preferred Units................................. 55,289 Partnership Common Units.................................... 55,289 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $55,289 Estimated going concern value............................. $44,866 Net book value............................................ $19,195
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. S-10 1151 We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Cedar Tree Investors Limited Partnership is a Kansas limited partnership which was formed on June 14, 1991 for the purpose of owning and operating a single apartment property located in Shawnee, Kansas, known as "Cedar Tree Apartments." Your Partnership's property consists of 344 apartment units and was built in 1984. Your partnership has no employees. As of September 30, 1998, there were 75 units of limited partnership interest issued and outstanding, which were held of record by 67 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 2,550,000 of limited partnership units in 1991. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $45,332 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2021, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $5,883,677, payable to FNMA, which bears interest at the rate of 6.43%. The mortgage debt is due in September, 2008. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 2,211.75 of our Class Two Partnership Preferred Units; - 1,436.25 of our Partnership Common Units; or - $55,289 in cash; S-11 1152 in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 75 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,211.75 Preferred OP Units, 1,429.25 Common OP Units, or $55,289 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; S-12 1153 - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the S-13 1154 effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $55,289 in cash, 2,211.75 Preferred OP Units or 1,429.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $55,289. S-14 1155 CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $23,588 for the fiscal year ended December 31, 1998. The property manager received management fees of $105,546.45 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,036,669 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 1156 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the period July 29, 1994 through December 31, 1994 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P.'S AIMCO PROPERTIES, L.P. PREDECESSORS(a) ------------------------------------------------------------------------- ------------------------- FOR THE FOR THE PERIOD PERIOD JULY 29, JANUARY 1, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 1994 FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DECEMBER 31, JULY 28, DECEMBER 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 ---------- ---------- ---------- -------- -------- ------------ ---------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................ $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056 Property operating expenses.............. (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200) Owned property management expenses... (7,746) (4,344) (6,620) (2,746) (2,276) (711) -- -- Depreciation............ (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702) ---------- ---------- ---------- -------- -------- --------- ------- -------- 96,562 48,154 72,477 39,814 27,483 9,126 2,391 3,154 ---------- ---------- ---------- -------- -------- --------- ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income.......... 13,968 9,173 13,937 8,367 8,132 3,217 6,533 8,069 Management and other expenses.............. (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414) Corporate overhead allocation............ (196) (441) (588) (590) (581) -- -- -- Other assets, depreciation and amortization.......... (3) (236) (453) (218) (168) (150) (146) (204) Owner and seller bonuses............... -- -- -- -- -- -- (204) (468) Amortization of management company goodwill.............. -- -- (948) (500) (428) -- -- -- ---------- ---------- ---------- -------- -------- --------- ------- -------- 5,668 3,467 2,038 1,707 2,002 1,020 360 983 Minority interests in service company business.............. -- 48 (10) 10 (29) (14) -- -- ---------- ---------- ---------- -------- -------- --------- ------- -------- Company's shares of income from service company business...... 5,668 3,515 2,028 1,717 1,973 1,006 360 983 ---------- ---------- ---------- -------- -------- --------- ------- -------- General and administrative expenses.............. (7,444) (1,408) (5,396) (1,512) (1,804) (977) -- -- Interest income......... 18,244 4,458 8,676 523 658 123 -- -- Interest expense........ (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510) Minority interest in other partnerships.... (1,052) (777) 1,008 (111) -- -- -- -- Equity in losses of unconsolidated partnerships(c)....... (5,078) (463) (1,798) -- -- -- -- -- Equity in earnings of unconsolidated subsidiaries(d)....... 8,413 456 4,636 -- -- -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- ------- -------- Income from operations............ 53,486 19,865 30,246 15,629 14,988 7,702 (1,463) 627 Gain on disposition of properties............ 2,783 (169) 2,720 44 -- -- -- -- Provision for income taxes................. -- -- -- -- -- -- (36) (336) ---------- ---------- ---------- -------- -------- --------- ------- -------- Income (loss) before extraordinary item.... 56,269 19,696 32,966 15,673 14,988 7,702 (1,499) 291 Extraordinary item -- early extinguishment of debt.................. -- (269) (269) -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- ------- -------- Net income (loss)....... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 $(1,499) $ 291 ========== ========== ========== ======== ======== ========= ======= ======== OTHER INFORMATION: Total owned properties (end of period)....... 241 109 147 94 56 48 4 4 Total owned apartment units (end of period)............... 62,955 28,773 40,039 23,764 14,453 12,513 1,711 1,711 Units under management (end of period)....... 154,729 71,038 69,587 19,045 19,594 20,758 29,343 28,422 Basic earnings per Common OP Unit........ $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A Diluted earnings per Common OP Unit........ $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A Distributions paid per Common OP Unit........ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A Cash flows provided by operating activities............ 50,825 53,435 73,032 38,806 25,911 16,825 2,678 2,203 Cash flows used in investing activities............ (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) (924) (16,352) Cash flows provided by (used in) financing activities............ 141,221 293,984 668,549 60,129 30,145 176,800 (1,032) 14,114
S-16 1157
AIMCO PROPERTIES, L.P.'S AIMCO PROPERTIES, L.P. PREDECESSORS(a) ------------------------------------------------------------------------- ------------------------- FOR THE FOR THE PERIOD PERIOD JULY 29, JANUARY 1, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 1994 FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED ----------------------- -------------------------------- DECEMBER 31, JULY 28, DECEMBER 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 ---------- ---------- ---------- -------- -------- ------------ ---------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A Weighted average number of Common OP Units outstanding............. 53,007 24,347 29,119 14,994 11,461 10,920 N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation............ $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 $47,500 $ 46,819 Real estate, net of accumulated depreciation............ 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 33,270 33,701 Total assets.............. 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 39,042 38,914 Total mortgages and notes payable................. 1,275,401 661,715 808,530 522,146 268,692 141,315 40,873 41,893 Redeemable Partnership Units................... 232,405 178,321 197,086 96,064 38,463 32,047 -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units......... -- -- -- -- -- 107,228 -- -- Partners' Capital......... 1,427,087 560,737 960,176 178,462 160,947 137,354 (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 1, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 1158 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest income........................................... (90,890) (121,699) Interest expense.......................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 1159 AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 1160 SUMMARY FINANCIAL INFORMATION OF CEDAR TREE INVESTORS LIMITED PARTNERSHIP The summary financial information of Cedar Tree Investors Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Cedar Tree Investors Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." CEDAR TREE INVESTORS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues................ $1,597,492 $1,411,623 $1,956,671 $1,900,467 $1,869,651 $1,771,627 $1,700,427 Net Income.................... 343,888 186,905 270,488 252,642 174,244 300,722 303,674 Net Income per limited partnership unit............ 4,589.32 2,487.15 3,570.44 3,334.87 2,300.02 3,969.53 4,008.50 Distributions per limited partnership unit............ 2,640.00 4,003.02 5,333.06 5,306.53 5,280.00 7,330.00 -- Distributions per limited partnership unit (which represent a return of capital).................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents..... $1,737,430 $ 443,046 $ 499,946 $ 465,919 $ 558,661 $ 769,194 $ 786,518 Real Estate, Net of Accumulated Depreciation.... 5,322,297 5,440,475 5,393,560 5,568,526 5,774,894 5,807,474 5,938,571 Total Assets.................. 7,692,993 6,353,104 6,301,510 6,463,360 6,774,275 6,967,984 7,210,155 Notes Payable................. 5,900,000 4,660,329 4,647,993 4,695,580 4,738,782 4,777,977 4,813,545 General Partners Capital/ (Deficit)..................... (5,274) (6,542) (6,713) (5,378) (3,894) (1,636) 910 Limited Partners' Capital....... 1,588,765 1,463,324 1,446,317 1,578,514 1,726,398 1,949,896 2,201,931 Partners' Capital............... 1,583,494 1,456,782 1,439,604 1,573,136 1,722,504 1,948,260 2,202,841 Total Distributions............. 200,000 303,259 404,020 402,010 400,000 555,303 373,968 Book value per limited partnership unit.............. 21,183.57 19,510.99 19,264.23 21,048.65 29,018.64 25,998.61 29,389.08 Net increase (decrease) in cash and cash equivalents.......... 1,237,484 (22,873) 34,027 (92,742) (210,533) (17,324) (114,745) Net cash provided by operating activities.................... 315,101 407,270 570,361 457,657 432,195 666,822 361,117 Ratio of earnings to fixed charges....................... 2.12/1 1.53/1 1.58/1 1.53/1 1.98/1 1.64/1 1.68/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
CEDAR TREE AIMCO INVESTORS OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,573.13 $14,640 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $4,423.50 $14,640
S-20 1161 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 1162 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth 10,000,000 less approximately 151,100 of deferred maintenance and investment not considered by the appraiser. It is possible, that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 1163 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 1164 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2021 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 1165 is equivalent to distributions of $4,423.50 per year on the number of Preferred OP Units, or distributions of $3,590.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $14,640 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 1166 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-26 1167 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest, consisting of a 0% limited partnership interest and a 1% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 1168 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 1169 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $186,905 for the nine months ended September 30, 1997, to $343,888 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are in September 2008. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-29 1170 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 1171 - Preferred Quarterly Distributions. Your partnership paid distributions of $14,640 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,423.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $14,640 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,573.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 1172 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 6.43% per annum, which resulted in a decrease from the initial capitalization rate of 0.15%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.38%, resulting in a final capitalization rate of 9.72%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 1173 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Cedar Tree Apartments $972,006 9.72% $10,000,000 -----------
- --------------- (1) The total net operating income is equal to total revenues of $1,928,088, less total expenses of $852,882 and recurring replacement costs of $103,200. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $4,295,383. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 96.54% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 972,000 Capitalization Rate......................................... 9.72% Estimated total gross valuation of your partnership's property.................................................. 10,000,000 Plus: Cash and cash equivalents............................. (500,054) Plus: Other partnership assets, net of security deposits.... 353,530 Less: Mortgage debt......................................... (4,647,993) Less: Accounts payable and accrued expenses................. (134,277) Less: Other liabilities..................................... (74,723) Partnership valuation before taxes and certain costs........ 4,996,483 Less: Disposition fees...................................... (300,000) Less: Extraordinary capital expenditures for deferred maintenance............................................... (151,100) Less: Closing costs......................................... (250,000) Estimated net valuation of your partnership................. 4,295,383 Percentage of estimated net valuation allocated to units.... 96.54% Estimated net valuation of units............................ 4,146,680 Total number of units............................. 75 Estimated valuation per unit................................ 55,289 ----------- Cash consideration per unit................................. 55,289 -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $55,289 by the $25 liquidation preference of each Preferred OP Unit to get 2,211.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $55,289 by a price of $38.69 to get 1,429.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-33 1174 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $4,295,383 or .76% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $186,905 for the nine months ended September 30, 1997 to $343,888 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-34 1175 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $55,289, based on a total estimated value of your partnership's property of $10,000,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $4,423.50 per year on the number of Preferred OP Units, or distributions of $3,573.13 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $14,640. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your S-35 1176 units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 1177 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2021, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $55,289 Partnership preferred units................................. $55,289(1) Partnership common units.................................... $55,289(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $55,289 Estimated going concern value............................. $44,866 Net book value............................................ $19,195
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 1178 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $44,866 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is only $19,194.72 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $55,902 per unit, going concern value of $53,737 per unit and liquidation value of $52,650 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 1179 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $613, $(1,552) and $(2,639). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 96.54% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 1180 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
CEDAR TREE ---------- Total Revenues.............................................. $2,041,673 Operating Expenses.......................................... (889,062) Replacement Reserves -- Net................................. (149,583) Debt Service................................................ (503,327) Capital Expenditures........................................ (32,620) ---------- Net Cash Flow..................................... $ 467,101 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance S-40 1181 with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 9.72%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and [(iii) extraordinary capital expenditure estimates in the amount of $151,180, a fee due the general partner of 3% of sales price and a proposed cash distribution of $1,000,000. Stanger observed that your partnership S-41 1182 liquidation value of $4,295,383 was allocated 96.54% to the limited partners and divided by the total units outstanding of 75 to provide the liquidation value per unit of $55,289. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $972,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $16,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.22%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.2%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 75 to achieve management's estimate of going concern value of $44,866 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $55,289 per unit is equal to management's estimate of liquidation value, and reflects a 23% premium to management's estimate of going concern value. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net S-42 1183 asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Additionally, Stanger's net asset value, liquidation value and going concern value calculations considered allocations to the general partners for 10% of value in excess of $2,355,000. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998, adjusted for a $1,000,000 cash distribution, which we advised Stanger would be made after September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $55,902, $53,737 and $52,650 representing premiums (discounts) to the offer price of 1.1%, (2.8)% and (4.89)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and S-43 1184 the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 1185 YOUR PARTNERSHIP GENERAL Cedar Tree Investors Limited Partnership, is a Kansas limited partnership which completed a private offering in 1991. Insignia acquired the general partner of your partnership in December, 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 67 limited partners of your partnership and a total of 75 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 14, 1991 for the purpose of owning an apartment property located in Shawnee, Kansas, known as "Cedar Tree Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1984 and consists of 344 apartment units. There are 199 one-bedroom apartments, 145 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 96.01% in 1998, 92.44% in 1997 and 92.44% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $134,900 and are intended to be paid for out of cash flow or borrowings. Major renovation items include heating, ventilation and air conditioning systems, siding/trim/facia/soffits, drives and parking lot, landscape and irrigation and life support systems. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $441 $430 $419 $391 $392
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $112,993 of $1,139,317 of assessed valuation with a current yearly tax rate of 9.92%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 10.12% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2021 unless earlier dissolved. Your S-45 1186 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $478, respectively, at December 31, 1998, compared to 96% and $441, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because the property is located in a growing and improving downtown area. In addition, the general partner noted that it expects to spend approximately $151,100 for initial capital expenditures at the property in 1999 to repair the property's HVAC, siding, parking lot, landscape and irrigation. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $5,883,677, payable to FNMA, which bears interest at a rate of 6.43%. The mortgage debt is due in September, 2008. Your S-46 1187 partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,550,000 of limited partnership units in 1991 for $83,607 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2021, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the doing of any act or the failure to do any act by the general partner, which does not constitute fraud, gross negligence or willful malfeasance as determined a court of competent jurisdiction, in pursuance of the authority granted to promote the interests of your partnership, the effect of which causes or results in loss or damage to your partnership, if done in good faith, will not subject the general partner or its affiliates to any liability. As a result unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will indemnify and hold harmless the general partners and their affiliates from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith which do not constitute fraud, gross negligence or willful malfeasance as determined by a court of competent jurisdiction, in pursuance of the authority granted to promote the interests of your partnership, including, without limitation, reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. All costs and expenses incurred in defending any proceeding or action or otherwise will be advanced by your partnership. Your partnership's agreement of limited partnership does not limit the amount or type or insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 1188 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $83,607.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 4,986 $ 3,740 $0 $ 92,557 1994.................................. 7,404 5,553 0 137,437 1995.................................. 5,333 4,000 0 99,000 1996.................................. 5,360 4,010 0 99,500 1997.................................. 5,386 4,040 0 99,995 1998.................................. 14,666 2,000 0 274,500 ------- ------- -- -------- Total....................... 43,135 23,343 $0 $802,989
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that no units have been transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner since 1993. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 1189 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $10,000 1995........................................................ 15,000 1996........................................................ 15,756 1997........................................................ 15,816 1998........................................................ 23,588
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1994........................................................ $ 87,451 1995........................................................ 91,253 1996........................................................ 94,152 1997........................................................ 96,106 1998........................................................ 105,546
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 1190 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
CEDAR TREE INVESTORS LP -------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ---------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Cash and Cash Equivalents........ $ 1,737,430 $ 443,046 $ 499,946 $ 465,919 $ 558,661 $ 769,194 $ 786,518 Land & Building.................. 7,034,630 6,875,795 6,898,133 6,796,085 6,726,542 6,523,009 6,429,734 Accumulated Depreciation......... (1,712,333) (1,435,320) (1,504,573) (1,227,559) (961,648) (715,535) (491,163) Other Assets..................... 633,266 469,583 408,004 428,915 420,720 391,316 485,066 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Total Assets............. $ 7,692,993 $ 6,353,104 $ 6,301,510 $ 6,463,360 $6,744,275 $6,967,984 $7,210,155 =========== =========== =========== =========== ========== ========== ========== Notes Payable.................... $ 5,900,000 $ 4,660,329 $ 4,647,993 $ 4,695,590 $4,738,782 $4,777,977 $4,813,545 Other Liabilities................ 209,499 235,993 213,913 194,634 282,989 241,747 193,769 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Total Liabilities........ $ 6,109,499 $ 4,896,322 $ 4,861,906 $ 4,890,224 $5,021,771 $5,019,724 $5,007,314 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Partners' Capital........ $ 1,583,494 $ 1,456,782 $ 1,439,604 $ 1,573,138 $1,722,504 $1,948,260 $2,202,841 =========== =========== =========== =========== ========== ========== ==========
CEDAR TREE INVESTORS LP ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,484,072 $1,302,065 $1,815,531 $1,770,230 $1,723,740 $1,610,896 $1,614,882 Other Income................... 113,420 109,558 141,140 130,237 145,911 160,731 85,545 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenues......... $1,597,492 $1,411,623 $1,956,671 $1,900,467 $1,869,651 $1,771,627 $1,700,427 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 607,447 $ 540,605 $ 777,678 $ 748,824 $ 796,744 $ 614,028 $ 558,951 General & Administrative....... 23,896 19,076 25,434 25,820 66,681 51,030 52,184 Depreciation................... 207,760 207,760 277,013 265,911 246,113 224,372 208,515 Interest Expense............... 307,375 353,748 470,025 475,804 463,814 467,470 470,788 Property Taxes................. 107,126 103,529 136,033 131,466 122,055 114,005 106,315 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $1,253,604 $1,224,718 $1,686,183 $1,647,825 $1,695,407 $1,470,905 $1,396,753 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income..................... $ 343,888 $ 186,905 $ 270,488 $ 252,642 $ 174,244 $ 300,722 $ 303,674 ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 4,539.32 $ 2,467.15 $ 3,570.44 $ 3,334.87 $ 2,300.02 $ 3,969.53 $ 4,008.50 ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ 2,640.00 $ 4,003.02 $ 5,333.06 $ 5,306.53 $ 5,280.00 $ 7,330.00 $ 0 ========== ========== ========== ========== ========== ========== ==========
S-50 1191 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $344,000 for the nine months ended September 30, 1998, compared to $187,000 for the nine months ended September 30, 1997. The increase in net income of $157,000 was the result of an increase in revenues, partially off-set by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,597,000 for the nine months ended September 30, 1998, compared to $1,412,000 for the nine months ended September 30, 1997, an increase of $185,000 , or 13%. The Partnership increased rental rates by an average of 6%; in addition, occupancy increased 6% to 97%. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $607,000 for the nine months ended September 30, 1998, compared to $541,000 for the nine months ended September 30, 1997, an increase of $68,000, due primarily to higher advertising charges and general increases in property costs. Partnership Property management expenses totaled $79,000 for the nine months ended September 30, 1998, compared to $71,000 for the nine months ended September 30, 1997, an increase of $8,000. This increase was primarily the result of the increase in rental revenues, as management fees are calculated based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $4,000 to $24,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher partnership administrative expenses and asset management fees. INTEREST EXPENSE Interest expense decreased $47,000 to $307,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This decrease is due to the refinancing of the debt during the first quarter of 1998. The new indebtedness has a lower stated interest rate. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $270,488 for the year ended December 31, 1997, compared to $252,642 for the year ended December 31, 1996. The increase in net income of $17,846, or 7.06% was primarily the result of an increase in rental revenues offset by an increase in operating expenses. S-51 1192 REVENUES Rental and other property revenues from the partnership's property totaled $1,956,671 for the year ended December 31, 1997, compared to $1,900,467 for the year ended December 31, 1996, an increase of $56,204, or 2.96%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $777,678 for the year ended December 31, 1997, compared to $748,824 for the year ended December 31, 1996, an increase of $28,854 or 3.85%. Management expenses totaled $96,106 for the year ended December 31, 1997, compared to $94,152 for the year ended December 31, 1996, an increase of $1,954, or 2.08%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $25,434 for the year ended December 31, 1997 compared to $25,820 for the year ended December 31, 1996, a decrease of $386 or 1.49%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $470,025 for the year ended December 31, 1997, compared to $475,804 for the year ended December 31, 1996, a decrease of $5,779, or 1.21%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $252,642 for the year ended December 31, 1996, compared to $174,244 for the year ended December 31, 1995. The increase in net income of $78,398, or 44.99% was primarily the result of a decrease in operating expenses and an increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,900,467 for the year ended December 31, 1996, compared to $1,869,651 for the year ended December 31, 1995, an increase of $30,816, or 1.65%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $748,824 for the year ended December 31, 1996, compared to $796,744 for the year ended December 31, 1995, a decrease of $47,920 or 6.01%. The decrease is primarily due to a decrease in maintenance expenses due to an extensive exterior painting project at the property in the fourth quarter of 1995. Management expenses totaled $94,152 for the year ended December 31, 1996, compared to $91,253 for the year ended December 31, 1995, an increase of $2,899, or 3.18%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $25,820 for the year ended December 31, 1996 compared to $66,681 for the year ended December 31, 1995, a decrease of $40,861 or 61.28%. The decrease is primarily due to reclassing on the financial statements of certain accounts from General and Administrative to Operating. Grouped the same way as in 1995, 1996 General and Administrative expense would be $65,555. S-52 1193 INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $475,804 for the year ended December 31, 1996, compared to $463,814 for the year ended December 31, 1995, an increase of $11,990 or 2.59%. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $1,737,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $5,900,000. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 1194 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 75 units of your partnership (up to 18.75 units) for consideration per unit of (i) 2,211.75 Preferred OP Units, (ii) 1,429.25 Common OP Units, or (iii) $55,289 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO S-54 1195 CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 1196 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 1197 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 1198 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 1199 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 1200 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 1201 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 1202 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 1203 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 1204 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 1205 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 1206 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 1207 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 1208 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 1209 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 1210 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 1211 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Kansas law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2021. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's property for Partnership is to conduct any business that investment. Subject to restrictions may be lawfully conducted by a limited contained in your partnership's agreement of partnership organized pursuant to the limited partnership, your partnership may do Delaware Revised Uniform Limited Part- all things necessary for or incidental to nership Act (as amended from time to time, the protection and benefit of your or any successor to such statute) (the partnership, including, borrowing funds and "Delaware Limited Partnership Act"), creating liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 1212 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 75 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or not enter into agreements with itself or any contribute funds or other assets to its of its affiliates for services, except as subsidiaries or other persons in which it otherwise specifically has an equity investment,
S-72 1213 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP provided in your partnership's agreement of and such persons may borrow funds from the limited partnership or on a basis no less AIMCO Operating Partnership, on terms and favorable to your partnership than that conditions established in the sole and which could have been arranged with absolute discretion of the general partner. unaffiliated third parties for comparable To the extent consistent with the business goods or services. Your partnership may not purpose of the AIMCO Operating Partnership lend money to the general partner or its and the permitted activities of the general affiliates, but the general partner may lend partner, the AIMCO Operating Partnership may such money to your partnership as the transfer assets to joint ventures, limited general partner, in its sole discretion, liability companies, partnerships, deems necessary for the payment of any corporations, business trusts or other partnership obligations and expenses. Such business entities in which it is or thereby loans will be repaid with interest at rate becomes a participant upon such terms and of 1% per annum over the then prevailing subject to such conditions consistent with prime rate of United Missouri Bank of Kansas the AIMCO Operating Partnership Agreement City, N.A., but in no event to exceed the and applicable law as the general partner, maximum rate, from the first available funds in its sole and absolute discretion, of your partnership and prior to believes to be advisable. Except as distributions to the limited partners, only expressly permitted by the AIMCO Operating from available funds, provided, however, Partnership Agreement, neither the general that the general partner must first make partner nor any of its affiliates may sell, reasonable efforts to obtain loans at the transfer or convey any property to the AIMCO most favorable rates from unaffiliated Operating Partnership, directly or persons. indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to enter into and execute, on contains no restrictions on borrowings, and behalf of your partnership, all agreements, the general partner has full power and contracts, instruments and related documents authority to borrow money on behalf of the in connection with the acquisition, AIMCO Operating Partnership. The AIMCO ownership, financing, management, Operating Partnership has credit agreements maintenance, operation and sale of your that restrict, among other things, its partnership's property by your partnership, ability to incur indebtedness. on such terms as the general partner, in its reasonable discretion, deems to be in the bests interests of your partnership.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP inspect and copy the books and records of Unitholder's own expense, to obtain a your partnership, including a current list current list of the name and last known of the full name and last known business business, residence or mailing address of address of each partner set forth in the general partner and each other OP alphabetical order, upon reasonable notice Unitholder. during business hours at the principal place of business of your partnership or such other place or places as may be determined by the general partner from time to time. In addition, a limited partner or its duly authorized representative has the right to receive by mail, upon written required to your partnership at such limited partner's sole cost and expense, a copy of a list of names and addresses of the limited partners and the number of
S-73 1214 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP units owned by each of them. However, no limited partner has the right to sell or disclose such list to any other person or to use such list for commercial purposes of any purpose unrelated to the business of your partnership.
Management Control The general partner of your partnership has All management powers over the business and full, exclusive and complete discretion in affairs of the AIMCO Operating Partnership the management of your partnership's are vested in AIMCO-GP, Inc., which is the business and has all rights and powers general partner. No OP Unitholder has any generally conferred by law or necessary, right to participate in or exercise control advisable or consistent in connection or management power over the business and therewith. The general partner must perform affairs of the AIMCO Operating Partner- such reasonable acts as may be consistent ship. The OP Unitholders have the right to with good business practices in its vote on certain matters described under performance as general partner. No limited "Comparison of Your Units and AIMCO OP partner may take part in or interfere in any Units -- Voting Rights" below. The general manner with the conduct or control of the partner may not be removed by the OP business of your partnership and no limited Unitholders with or without cause. partner has the right or authority to act for or bind your partnership. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the doing of any act or forth in the AIMCO Operating Partnership the failure to do any act by the general Agreement, the general partner is not liable partner, which does not constitute fraud, to the AIMCO Operating Partnership for gross negligence or willful malfeasance as losses sustained, liabilities in-
S-74 1215 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP determined by a court of competent curred or benefits not derived as a result jurisdiction, in pursuance of the authority of errors in judgment or mistakes of fact or granted to promote the interests of your law of any act or omission if the general partnership, the effect of which causes or partner acted in good faith. The AIMCO results in loss or damage to your partner- Operating Partnership Agreement provides for ship, if done in good faith, will not indemnification of AIMCO, or any director or subject the general partner or its officer of AIMCO (in its capacity as the affiliates to any liability. In addition, previous general partner of the AIMCO your partnership will also indemnify and Operating Partnership), the general partner, hold harmless the general partners and their any officer or director of general partner affiliates from any claim, loss, expense, or the AIMCO Operating Partnership and such liability, action or damage resulting from other persons as the general partner may any act or omission done in good faith which designate from and against all losses, does not constitute fraud, gross negligence claims, damages, liabilities, joint or or willful malfeasance as determined by a several, expenses (including legal fees), court of competent jurisdiction, in fines, settlements and other amounts pursuance of the authority granted to incurred in connection with any actions promote the interests of your partnership, relating to the operations of the AIMCO including, without limitation, reasonable Operating Partnership, as set forth in the fees and expenses of attorneys engaged by AIMCO Operating Partnership Agreement. The the general partner in defense of such act Delaware Limited Partnership Act provides or omission and other reasonable costs and that subject to the standards and expenses of litigation and appeal. restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, after notice to the partner has exclusive management power over general partner, the limited partners may the business and affairs of the AIMCO remove such general partner upon a vote of Operating Partnership. The general partner the limited partners holding a majority of may not be removed as general partner of the the outstanding units. A general partner may AIMCO Operating Partnership by the OP resign at any time provided that such Unitholders with or without cause. Under the resignation is accepted by the limited AIMCO Operating Partnership Agreement, the partners owning more than 50% of the general partner may, in its sole discretion, outstanding units and sixty days prior to prevent a transferee of an OP Unit from the effective date of such resignation such becoming a substituted limited partner general partner nominates as a substitute pursuant to the AIMCO Operating Partnership general partner a willing person or entity Agreement. The general partner may exercise who meets the requirements of the tax laws. this right of approval to deter, delay or A general partner may be admitted only with hamper attempts by persons to acquire a the consent of the general partners, if any, controlling interest in the AIMCO Operating and a majority-in-interest of the limited Partnership. Additionally, the AIMCO partners. A limited partner may not transfer Operating Partnership Agreement contains its units without the consent of the general restrictions on the ability of OP partner. Unitholders to transfer their OP Units. See
S-75 1216 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Approval by a majority of the then With the exception of certain circumstances outstanding limited partnership interests is set forth in the AIMCO Operating Partnership necessary to effect an amendment to your Agreement, whereby the general partner may, partnership's agreement of limited without the consent of the OP Unitholders, partnership. Amendments may be proposed by amend the AIMCO Operating Partnership the general partner or by limited partners Agreement, amendments to the AIMCO Operating holding 10% or more of the then outstanding Partnership Agreement require the consent of units. However, the general partner may the holders of a majority of the outstanding amend your partnership's agreement of Common OP Units, excluding AIMCO and certain limited partnership from time to time to other limited exclusions (a "Majority in effect changes of a ministerial nature which Interest"). Amendments to the AIMCO do not materially and adversely affect the Operating Partnership Agreement may be rights of the limited partners, as required proposed by the general partner or by by law, to add to the representations, holders of a Majority in Interest. Following duties or obligations of the general partner such proposal, the general partner will or surrender any right or power granted to submit any proposed amendment to the OP the general partner under your partnership's Unitholders. The general partner will seek agreement of limited partnership for the the written consent of the OP Unitholders on benefit of the limited partners, to cure any the proposed amendment or will call a ambiguity and to correct or supplement any meeting to vote thereon. See "Description of provision in your partnership's agreement of OP Units -- Amendment of the AIMCO Operating limited partnership which may be Partnership Agreement" in the accompanying inconsistent with any other provision. Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner, unless it is deemed to Except for fraud, willful misconduct or be taking part in the control of the gross negligence, no OP Unitholder has business of your partnership, is bound by or personal liability for the AIMCO Operating personally liable for the expenses, Partnership's debts and obligations, and liabilities or obligation of your liability of the OP Unitholders for the partnership. The liability of a limited AIMCO Operating Partnership's debts and partner is limited solely to the amount of obligations is generally limited to the its contribution to the capital of your amount of their investment in the AIMCO partnership, whether or not returned to it, Operating Partnership. However, the together with the undistributed share of the limitations on the liability of limited profits of your
S-76 1217 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership from time to time credited to partners for the obligations of a limited such limited partner's capital account and partnership have not been clearly any money or other property wrongfully paid established in some states. If it were or conveyed to such limited partner on determined that the AIMCO Operating Part- account of its contribution, including but nership had been conducting business in any not limited to money or property to which state without compliance with the applicable creditors were legally entitled, paid or limited partnership statute, or that the conveyed to such limited partner, and under right or the exercise of the right by the certain circumstances, interest on returned holders of OP Units as a group to make capital. certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership is Unless otherwise provided for in the not required to devote all of its time or relevant partnership agreement, Delaware law business efforts to the affairs of your generally requires a general partner of a partnership, but must devote so much of its Delaware limited partnership to adhere to time and attention to your partnership as is fiduciary duty standards under which it owes necessary and advisable to successfully its limited partners the highest duties of manage the affairs of your partnership. The good faith, fairness and loyalty and which general partner is not required to manage generally prohibit such general partner from your partnership as its sole and exclusive taking any action or engaging in any function and it may have other business transaction as to which it has a conflict of interests and may engage in other activities interest. The AIMCO Operating Partnership in addition to those relating to your Agreement expressly authorizes the general partnership, including the rendering of partner to enter into, on behalf of the advice or services of any kind to other AIMCO Operating Partnership, a right of investors and the making or management of first opportunity arrangement and other other investors. Neither your partnership conflict avoidance agreements with various nor any partner has rights in or to such affiliates of the AIMCO Operating ventures or activities or to the income or Partnership and the general partner, on such proceeds derived therefrom, and the pursuit terms as the general partner, in its sole of such ventures, even if competitive with and absolute discretion, believes are the business of your partnership, shall not advisable. The AIMCO Operating Partnership be deemed wrongful or improper. In addition, Agreement expressly limits the liability of any partner or its affiliates may engage in the general partner by providing that the or possess an interest in other business general partner, and its officers and ventures of every nature and description, directors will not be liable or accountable whether such ventures are competitive with in damages to the AIMCO Operating your partnership or otherwise, including but Partnership, the limited partners or as- not limited to, the acquisition, ownership, signees for errors in judgment or mistakes financing, leasing, operation, management, of fact or law or of any act or omission if syndication, brokerage, sale, construction the general partner or such director or and development of real property, which may officer acted in good faith. See be located in the market area or vicinity of "Description of OP Units -- Fiduciary your partnership's property, and neither Responsibilities" in the accompanying your partnership nor any partners shall have Prospectus. any right in or to such independent ventures or to the income or profits derived therefrom. In general, your partnership's agreement of limited partnership and the AIMCO Operating Partnership
S-77 1218 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Agreement have limitations on the liability of the general partner but such limitations differ and provide more protection for the general partner of the AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The
S-78 1219 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting holders of a majority of the Agreement, the holders of rights only with respect to outstanding units is re- the Preferred OP Units will certain limited matters such quired to amend your have the same voting rights as certain amendments and partnership's agreement of as holders of the Common OP termination of the AIMCO limited partnership subject Units. See "Description of Operating Partnership to certain limitations, to OP Units" in the accompany- Agreement and certain terminate your partnership, ing Prospectus. So long as transactions such as the to remove a general partner any Preferred OP Units are institution of bankruptcy and elect a replacement outstanding, in addition to proceedings, an assignment therefore and to approve or any other vote or consent of for the benefit of creditors disapprove the sale at one partners required by law or and certain transfers by the time (or in a series of by the AIMCO Operating general partner of its sales pursuant to a single Partnership Agreement, the interest in the AIMCO plan) of all or affirmative vote or consent Operating Partnership or the substantially all of your of holders of at least 50% admission of a successor partnership's assets except of the outstanding Preferred general partner. sales made in the ordinary OP Units will be necessary course of your partnership's for effecting any amendment Under the AIMCO Operating continuing business. All of any of the provisions of Partnership Agreement, the such actions, except the the Partnership Unit general partner has the removal of a general partner power to ef- requires the concurrence of the
S-79 1220 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS general partner. Designation of the Preferred fect the acquisition, sale, OP Units that materially and transfer, exchange or other A general partner may cause adversely affects the rights disposition of any assets of the dissolution of your or preferences of the the AIMCO Operating partnership by retiring holders of the Preferred OP Partnership (including, but unless, within ninety days, Units. The creation or not limited to, the exercise the remaining general part- issuance of any class or or grant of any conversion, ner agrees to continue the series of partnership units, option, privilege or business of your including, without subscription right or any partnership. If there are no limitation, any partner- other right available in remaining general part- ship units that may have connection with any assets ners, all of the limited rights senior or superior to at any time held by the partners may agree to the Preferred OP Units, AIMCO Operating Partnership) continue the business and shall not be deemed to or the merger, elect a successor general materially adversely affect consolidation, partner by a the rights or preferences of reorganization or other majority-in-interest vote the holders of Preferred OP combination of the AIMCO within 90 days of the Units. With respect to the Operating Partnership with resignation. exercise of the above or into another entity, all described voting rights, without the consent of the In general, you have greater each Preferred OP Units OP Unitholders. voting rights in your shall have one (1) vote per partnership than you will Preferred OP Unit. The general partner may have as an OP Unitholder. OP cause the dissolution of the Unitholders can not remove AIMCO Operating Partnership the general partner of the by an "event of withdrawal," AIMCO Operating Partnership. as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
S-80 1221 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. The quarterly cash distributions to distribute quarterly all, distributions payable to the at the rate of $0.50 per or such portion as the partners are not fixed in Preferred OP Unit; provided, general partner may in its amount and depend upon the however, that at any time sole and absolute discretion operating results and net and from time to time on or determine, of Available Cash sales or refinancing pro- after the fifth anniversary (as defined in the AIMCO ceeds available from the of the issue date of the Operating Partnership disposition of your Preferred OP Units, the Agreement) generated by the partnership's assets. AIMCO Operating Partnership AIMCO Operating Partnership may adjust the annual during such quarter to the distribution rate on the general partner, the special Preferred OP Units to the limited partner and the lower of (i) 2.00% plus the holders of Common OP Units annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special limited partner original issue. Holders of and holders of Common OP Preferred OP Units will not Units with respect to be entitled to receive any distributions of Available distributions in excess of Cash, distributions upon cumulative distributions on liquidation or other the Preferred OP Units. No distributions. See "Per interest, or sum of money in Share and Per Unit Data" in lieu of interest, shall be the accompanying Prospectus. payable in respect of any distribution payment or pay- The general partner in its ments on the Preferred OP sole and absolute discretion Units that may be in may distribute to the OP arrears. Unitholders Available Cash on a more frequent basis and When distributions are not provide for an appropriate paid in full upon the record date. Preferred OP Units or any Parity Units (as defined The AIMCO Operating Partner- below), all distributions ship Agreement requires the declared upon the Preferred general partner to take such OP Units and any Parity reasonable efforts, as Units shall be declared determined by it in its sole ratably in proportion to the and absolute discretion and respective amounts of consistent with AIMCO's distributions accumulated, qualification as a accrued and unpaid on the Preferred OP Units and such Parity Units. Unless full cumulative dis-
S-81 1222 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tributions on the Preferred REIT, to cause the AIMCO OP Units have been declared Operating Partnership to and paid, except in limited distribute sufficient circumstances, no amounts to enable the distributions may be general partner to transfer declared or paid or set funds to AIMCO and enable apart for payment by the AIMCO to pay stockholder AIMCO Operating Partnership dividends that will (i) and no other distribution of satisfy the requirements for cash or other property may qualifying as a REIT under be declared or made, the Code and the Treasury directly or indirectly, by Regulations and (ii) avoid the AIMCO Operating any Federal income or excise Partnership with respect to tax liability of AIMCO. See any Junior Units (as de- "Description of OP fined below), nor shall any Units -- Distributions" in Junior Units be redeemed, the accompanying Prospectus. purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
Subject to the restrictions There is no public market There is no public market on transferability required for the Preferred OP Units for the OP Units. The AIMCO by Federal or state law, and the Preferred OP Units Operating Partnership limited partner may transfer are not listed on any Agreement restricts the his limited partnership securities exchange. The transferability of the OP interest to any person pro- Preferred OP Units are Units. Until the expiration vided that: (i) such subject to restrictions on of one year from the date on transfer is not in transfer as set forth in the which an OP Unitholder contravention of your AIMCO Operating Partnership acquired OP Units, subject partnership's agreement of Agreement. to certain exceptions, such limited partnership, (ii) a OP Unitholder may not duly executed and Pursuant to the AIMCO transfer all or any por- acknowledged assignment has Operating Partnership tion of its OP Units to any been approved by the general Agreement, until the transferee without the partner, which approval expiration of one year from consent of the general shall be in its sole the date on which a holder partner, which consent may discretion and absolute of Preferred OP Units be withheld in its sole and power, and (iii) the acquired Preferred OP Units, absolute discretion. After transferee represents in subject to certain the expiration of one year, writing that it satisfies exceptions, such holder of such OP Unitholder has the the suitability requirements Preferred OP Units may not right to transfer all or any for limited partners. transfer all or any portion portion of its OP Units to However, no transfer may of its Preferred OP Units to any person, subject to the occur if in light of the any transferee without the satisfaction of certain con- total of all transfers sold consent of the general ditions specified in the or exchanged within the partner, which consent may AIMCO Operating Partnership period of twelve consecutive be withheld in its sole and Agreement, including the months prior there, there absolute discretion. After general partner's right of might result a termination the expiration of one year, first refusal. See of your partnership for tax such holders of Preferred OP "Description of OP Units -- purposes in the opinion of Units has the right to Transfers and Withdrawals" counsel. In order for a transfer all or any portion in the accompanying transferee to be substituted of its Preferred OP Units to Prospectus. as a limited partner, in any addition to the above require-
S-82 1223 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ments: (1) the assignee must person, subject to the execute an irrevocable power satisfaction of certain After the first anniversary of attorney appointing the conditions specified in the of becoming a holder of general partner as the AIMCO Operating Partner- Common OP Units, an OP assignee's attorney- ship Agreement, including Unitholder has the right, in-fact, (2) an opinion of the general partner's right subject to the terms and counsel must be received by of first refusal. conditions of the AIMCO the general partner that Operating Partnership such transfer does not After a one-year holding Agreement, to require the violate applicable period, a holder may redeem AIMCO Operating Partnership securities laws, (3) a Preferred OP Units and to redeem all or a portion transfer fee must be paid, receive in exchange of the Common OP Units held (4) the interest transferred therefor, at the AIMCO Oper- by such party in exchange must not be less than one ating Partnership's option, for a cash amount based on Unit or such lesser amount (i) subject to the terms of the value of shares of Class as the assignor owned and any Senior Units (as defined A Common Stock. See (5) such other conditions as below), cash in an amount "Description of OP are set forth in your equal to the Liquidation Units -- Redemption Rights" partnership's agreement of Preference of the Preferred in the accompanying limited partnership must be OP Units tendered for Prospectus. Upon receipt of fulfilled. redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 1224 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 1225 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 1226 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 1227 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 1228 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 1229 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 1230 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 1231 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-91 1232 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 1233 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $15,756 in 1996, $15,816 in 1997 and $23,588 in 1998. The property manager received management fees of $94,152 in 1996, $96,106 in 1997 and $105,546 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-92 1234 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,036,669 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-93 1235 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Cedar Tree Investors Limited Partnership at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in this prospectus supplement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. S-94 1236 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheet as of December 31, 1997....................... F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1997 and 1996.................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-18 Balance Sheet as of December 31, 1996....................... F-19 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-20 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1996 and 1995.................... F-21 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-22 Notes to Financial Statements............................... F-23
F-1 1237 CEDAR TREE INVESTORS LP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $1,737,430 Receivables and deposits.................................... 89,510 Restricted escrows.......................................... 230,458 Other assets................................................ 313,298 Investment property: Land...................................................... $ 1,032,000 Building and related personal property.................... 6,002,630 ----------- 7,034,630 ----------- Less: Accumulated depreciation............................ (1,712,333) 5,322,297 ----------- ---------- Total assets...................................... $7,692,993 ========== LIABILITIES AND PARTNERS' CAPITAL Accrued liabilities......................................... $ 19,253 Property taxes payable...................................... 107,126 Tenant security deposits.................................... 83,120 Notes payable............................................... 5,900,000 Partners' capital................................. 1,583,494 ---------- Total liabilities and partners' capital........... $7,692,993 ---------- ----------
F-2 1238 CEDAR TREE INVESTORS LP CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,484,072 $1,302,065 Other income.............................................. 113,420 109,558 ---------- ---------- Total revenues.................................... 1,597,492 1,411,623 Expenses: Operating expenses........................................ 607,447 540,605 General and administrative expenses....................... 23,896 19,076 Depreciation expense...................................... 207,760 207,760 Interest expense.......................................... 307,375 353,748 Property tax expense...................................... 107,126 103,529 ---------- ---------- Total expenses.................................... 1,253,604 1,224,718 ---------- ---------- Net income........................................ $ 343,888 $ 186,905 ========== ==========
F-3 1239 CEDAR TREE INVESTORS LP CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ----------- --------- Operating activities: Net income................................................ $ 343,888 $ 186,905 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................. 218,010 219,273 Changes in accounts: Receivables and deposits and other assets.............. (242,383) (40,267) Accounts payable and accrued expenses.................. (4,414) 41,359 ----------- --------- Net cash provided by operating activities......... 315,101 407,270 ----------- --------- Investing activities: Property improvements and replacements.................... (136,497) (79,709) Net decrease (increase) in restricted escrow.............. 6,873 (11,914) ----------- --------- Net cash used in investing activities..................... (129,624) (91,623) ----------- --------- Financing activities: Payments on mortgage...................................... (4,647,993) (35,261) ----------- --------- Proceeds from refinancing of mortgage..................... 5,900,000 -- Partners' distributions................................... (200,000) (303,259) ----------- --------- Net cash provided by (used in) financing activities....... 1,052,007 (338,520) ----------- --------- Net increase (decrease) in cash and cash equivalents...... 1,237,484 (22,873) Cash and cash equivalents at beginning of year............ 499,946 465,919 ----------- --------- Cash and cash equivalents at end of period................ $ 1,737,430 $ 443,046 =========== =========
F-4 1240 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1241 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND INDEPENDENT AUDITORS' REPORT F-6 1242 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) TABLE OF CONTENTS
PAGE(S) --------- Independent Auditors' Report................................ F-8 Financial Statements as of December 31, 1997 and for the Years Ended December 31, 1997 and 1996: Balance Sheet............................................. F-9 Statements of Operations.................................. F-10 Statements of Changes in Partners' Capital (Deficit)...... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13 - 15
F-7 1243 INDEPENDENT AUDITORS' REPORT To the Partners of Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1997, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Greenville, SC February 17, 1998 (except for Note 6, as to which the date is March 17, 1998) F-8 1244 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 499,946 Receivables and deposits.................................... 102,427 Restricted escrows.......................................... 237,329 Other assets (Note 1)....................................... 68,248 Investment properties -- at cost (Notes 1 and 2): Land...................................................... $ 1,032,000 Building and related personal property.................... 5,866,133 ----------- 6,898,133 Less accumulated depreciation............................... (1,504,573) 5,393,560 ----------- ---------- Total Assets...................................... $6,301,510 ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 14,977 Tenant security deposits payable.......................... 74,723 Accrued property taxes.................................... 68,017 Other liabilities......................................... 56,196 Mortgage note payable (Note 2)............................ 4,647,993 Partners' Capital (Deficit) (Note 3): General partner........................................... $ (6,713) Limited partners (75 units issued and outstanding)........ 1,446,317 1,439,604 ----------- ---------- Total Liabilities and Partners' Capital........... $6,301,510 ==========
See notes to financial statements. F-9 1245 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---------- ---------- Revenues: Rental income............................................. $1,815,531 $1,770,230 Other income.............................................. 141,140 130,237 ---------- ---------- Total revenues......................................... 1,956,671 1,900,467 ---------- ---------- Expenses: Operating................................................. 777,678 748,824 General and administrative................................ 25,434 25,820 Depreciation.............................................. 277,013 265,911 Interest.................................................. 470,025 475,804 Property taxes............................................ 136,033 131,466 ---------- ---------- Total expenses......................................... 1,686,183 1,647,825 ---------- ---------- Net Income (Note 5)......................................... $ 270,488 $ 252,642 ========== ========== Net Income Allocated to General Partner (1%)................ $ 2,705 $ 2,526 Net Income Allocated to Limited Partners (99%).............. 267,783 250,116 ---------- ---------- Total............................................. $ 270,488 $ 252,642 ========== ========== Net Income Per Limited Partnership Unit -- Based on 75 weighted average limited partnership units during the years ended December 31, 1997 and 1996.................... $ 3,570 $ 3,335 ========== ==========
See notes to financial statements. F-10 1246 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1997 AND 1996
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1995....................................... 75 $(3,894) $1,726,398 $1,722,504 Partners' distributions.................... -- (4,010) (398,000) (402,010) Net income for the year ended December 31, 1996....................... -- 2,526 250,116 252,642 ------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1996....................................... 75 (5,378) 1,578,514 1,573,136 Partners' distributions.................... -- (4,040) (399,980) (404,020) Net income for the year ended December 31, 1997....................... -- 2,705 267,783 270,488 ------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1997....................................... 75 $(6,713) $1,446,317 $1,439,604 ======= ======= ========== ==========
See notes to financial statements. F-11 1247 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- Cash Flows From Operating Activities: Net income................................................ $ 270,488 $ 252,642 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 277,013 265,911 Amortization of loan costs............................. 15,351 15,351 Change in operating assets and liabilities: Receivables and deposits............................. (11,905) 13,599 Other assets......................................... 135 (1,491) Accounts payable..................................... 4,401 (50,798) Accrued property taxes............................... 2,284 4,706 Tenant security deposits payable..................... 11,545 (731) Other liabilities.................................... 1,049 (41,532) --------- --------- Net cash provided by operating activities......... 570,361 457,657 --------- --------- Cash Flows From Investing Activities: Property improvements and replacements.................... (102,048) (69,543) Net receipts from (deposits to) restricted escrows........ 17,331 (35,654) --------- --------- Net cash used in investing activities............. (84,717) (105,197) --------- --------- Cash Flows From Financing Activities: Principal payments on mortgage note payable............... (47,597) (43,192) Partners' distributions................................... (404,020) (402,010) --------- --------- Net cash used in financing activities............. (451,617) (445,202) --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents........ 34,027 (92,742) Cash and Cash Equivalents, Beginning of Year................ 465,919 558,661 --------- --------- Cash and Cash Equivalents, End of Year...................... $ 499,946 $ 465,919 ========= ========= Supplemental Disclosure of Cash Flow Information -- Cash paid during the year for interest......................... $ 455,730 $ 459,816 ========= =========
See notes to financial statements. F-12 1248 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily residential complex located in Shawnee, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the leases and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Investment Properties Investment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture and fixtures. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Other Assets Included in other assets are deferred charges which consist of loan costs totaling $153,506 which are amortized over the term of the related note. Accumulated amortization as of December 31, 1997 was $98,532. F-13 1249 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Advertising The Partnership expenses the cost of advertising as incurred. Advertising expense, included in operating expenses, was $48,608 and $25,589 for the years ended December 31, 1997 and 1996, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTE PAYABLE The mortgage note payable consists of a 10-year nonrecourse note collateralized by Cedar Tree Apartments, payable in monthly installments of $41,944, including interest. The interest rate is fixed at 9.75% per year. The mortgage note payable matures on September 1, 2001. Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 1998..................................................... $ 52,450 1999..................................................... 57,799 2000..................................................... 63,693 2001..................................................... 4,474,051 ---------- Total.................................................... $4,647,993 ==========
3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. On February 15, 1998, the Partnership paid a distribution to the partners of $100,000. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1997 and 1996, the Partnership paid the following amounts to affiliates of the general partner:
1997 1996 ------- ------- Property management fees................................. $96,106 $94,152 Reimbursement of expenses................................ 15,816 15,756
In addition, affiliates of the general partner were paid $6,844 and $6,537 during 1997 and 1996, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. For the period from January 1, 1996 to August 31, 1997, the Partnership insured Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance F-14 1250 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the general partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the general partner by virtue of the agent's obligations as not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1997 and 1996:
1997 1996 -------- -------- Net income as reported................................. $270,488 $252,642 Add (deduct): Deferred revenue..................................... 1,905 (39,988) Depreciation differences............................. 11,077 5,102 Other................................................ 200 300 -------- -------- Federal taxable income................................. $283,670 $218,056 ======== ======== Federal taxable income per limited partnership unit.... $ 3,744 $ 2,878 ======== ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1997 and 1996:
1997 1996 ---------- ---------- Net assets as reported.............................. $1,439,604 $1,573,136 Differences in basis of assets and liabilities: Deferred revenue.................................. 4,911 3,006 Accumulated depreciation.......................... (9,377) (20,454) Syndication costs................................. 213,094 213,094 Other............................................. 500 300 ---------- ---------- Net assets -- tax basis............................. $1,648,732 $1,769,082 ========== ==========
6. SUBSEQUENT EVENTS On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the general partner of the Partnership. F-15 1251 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND INDEPENDENT AUDITORS' REPORT F-16 1252 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) TABLE OF CONTENTS
PAGE ----------- Independent Auditors' Report................................ F-18 Financial Statements as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995: Balance Sheet............................................. F-19 Statements of Operations.................................. F-20 Statements of Changes in Partners' Capital (Deficit)...... F-21 Statements of Cash Flows.................................. F-22 Notes to Financial Statements............................. F-23 - F-25
F-17 1253 INDEPENDENT AUDITORS' REPORT To the Partners of Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1996, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Greenville, South Carolina February 21, 1997 F-18 1254 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1996 ASSETS Cash and cash equivalents................................... $ 465,919 Restricted cash -- tenant security deposits................. 63,178 Accounts receivable......................................... 3,347 Prepaid expenses............................................ 13,408 Escrows for taxes and insurance............................. 23,997 Restricted escrows.......................................... 254,660 Deferred charges -- net of accumulated amortization of $83,181................................................... 70,325 Apartment properties -- at cost (Notes 1 and 2): Land...................................................... $ 1,032,000 Buildings, improvements and related personal property..... 5,764,085 ----------- 6,796,085 Less accumulated depreciation............................... (1,227,559) 5,568,526 ----------- ---------- Total Assets...................................... $6,463,360 ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable............................................ $ 10,576 Accrued and other liabilities: Property taxes............................................ $ 65,733 Tenant security deposits.................................. 63,178 Interest.................................................. 38,821 Unearned rental collections............................... 3,006 Other..................................................... 13,320 184,058 ----------- Mortgage note payable (Note 2).............................. 4,695,590 Partners' Capital (Deficit) (Note 3): General partner............................................. (5,378) Limited partners (75 units issued and outstanding).......... 1,578,514 1,573,136 ----------- ---------- Total Liabilities and Partners' Capital........... $6,463,360 ==========
See notes to financial statements. F-19 1255 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- Revenues: Rentals................................................... $1,770,230 $1,723,740 Other income.............................................. 111,766 100,696 ---------- ---------- Total revenues......................................... 1,881,996 1,824,436 ---------- ---------- Expenses: Operating................................................. 317,257 294,010 Administrative............................................ 65,555 66,681 Property management fees (Note 4)......................... 94,152 91,253 Advertising and rental incentives......................... 58,773 80,013 Maintenance............................................... 198,565 277,823 Depreciation.............................................. 265,911 246,113 Amortization of deferred charges.......................... 15,351 15,350 Interest.................................................. 460,453 463,814 Property taxes............................................ 131,466 122,055 Insurance................................................. 40,342 38,295 ---------- ---------- Total expenses......................................... 1,647,825 1,695,407 ---------- ---------- Income From Property Operations............................. 234,171 129,029 Interest Income............................................. 18,471 45,215 ---------- ---------- Net Income (Note 5)......................................... $ 252,642 $ 174,244 ========== ========== Net Income Allocated to General Partner (1%)................ $ 2,526 $ 1,742 Net Income Allocated to Limited Partners (99%).............. 250,116 172,502 ---------- ---------- Total............................................. $ 252,642 $ 174,244 ========== ========== Net Income Per Limited Partnership Unit -- Based on 75 weighted average limited partnership units during the years ended December 31, 1996 and 1995.................... $ 3,335 $ 2,300 ========== ==========
See notes to financial statements. F-20 1256 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1996 AND 1995
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1994....................................... 75 $(1,636) $1,949,896 $1,948,260 Partners' distributions.................... -- (4,000) (396,000) (400,000) Net income for the year ended December 31, 1995.................................... -- 1,742 172,502 174,244 ---- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1995....................................... 75 (3,894) 1,726,398 1,722,504 Partners' distributions.................... -- (4,010) (398,000) (402,010) Net income for the year ended December 31, 1996.................................... -- 2,526 250,116 252,642 ---- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1996....................................... 75 $(5,378) $1,578,514 $1,573,136 ==== ======= ========== ==========
See notes to financial statements. F-21 1257 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------- -------- Cash Flows From Operating Activities: Net income................................................ $252,642 $174,244 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 265,911 246,113 Amortization of deferred charges....................... 15,351 15,350 Change in operating assets and liabilities: Restricted cash...................................... 731 (13,329) Accounts receivable.................................. (1,357) 1,712 Prepaid expenses..................................... (1,491) (327) Escrow deposits for taxes and insurance.............. 14,225 (2,134) Accounts payable..................................... (50,798) 31,775 Accrued property taxes............................... 4,706 4,717 Tenant security deposits liability................... (731) 8,724 Accrued interest..................................... 318 (318) Unearned rental collections.......................... (39,989) (9,967) Other liabilities.................................... (1,861) 6,311 -------- -------- Net cash provided by operating activities......... 457,657 462,871 -------- -------- Cash Flows From Investing Activities: Property improvements and replacements.................... (69,543) (203,533) Deposits to restricted escrows............................ (68,800) (78,850) Receipts from restricted escrows.......................... 33,146 48,174 -------- -------- Net cash used in investing activities............. (105,197) (234,209) -------- -------- Cash Flows From Financing Activities: Principal payments on mortgage note payable............... (43,192) (39,195) Partners' distributions................................... (402,010) (400,000) -------- -------- Net cash used in financing activities............. (445,202) (439,195) -------- -------- Net Decrease in Cash and Cash Equivalents................... (92,742) (210,533) Cash and Cash Equivalents, Beginning of Year................ 558,661 769,194 -------- -------- Cash and Cash Equivalents, End of Year...................... $465,919 $558,661 ======== ======== Supplemental Disclosure of Cash Flow Information -- Cash paid during the year for interest......................... $459,816 $464,132 ======== ========
See notes to financial statements. F-22 1258 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily residential complex located in Shawnee, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Apartment Properties Apartment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture and fixtures. During 1995, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of SFAS No. 121 had no effect on the Partnership's financial statements. F-23 1259 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred Charges Deferred charges consist of loan costs which are amortized over the term of the related note. Advertising The Partnership expenses the cost of advertising as incurred. Advertising expense, included in operating expenses, was $25,589 and $18,647 for the years ended December 31, 1996 and 1995, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTE PAYABLE The mortgage note payable consists of a 30-year nonrecourse note collateralized by Cedar Tree Apartments, payable in monthly installments of $41,944, including interest. The interest rate is fixed at 9.75% per year. Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 1997..................................................... $ 47,597 1998..................................................... 52,450 1999..................................................... 57,799 2000..................................................... 63,693 2001..................................................... 70,189 Thereafter............................................... 4,403,862 ---------- Total.......................................... $4,695,590 ==========
3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. Subsequent to December 31, 1996, the Partnership paid a distribution to the partners of $101,000 on February 18, 1997. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1996 and 1995, the Partnership paid the following amounts to affiliates of the general partner:
1996 1995 ------- ------- Property management fees................................. $94,152 $91,253 Reimbursement of expenses................................ 15,756 15,000
F-24 1260 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In addition, affiliates of the general partner were paid $6,537 and $20,256 during 1996 and 1995, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. The Partnership insures Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1996 and 1995:
1996 1995 ---------- ---------- Net income as reported.............................. $ 252,642 $ 174,244 Add (deduct): Deferred revenue.................................. (39,988) (9,968) Depreciation differences.......................... 5,102 (4,330) Other............................................. 300 -- ---------- ---------- Federal taxable income.............................. $ 218,056 $ 159,946 ========== ========== Federal taxable income per limited partnership unit.............................................. $ 2,878 $ 2,111 ========== ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1996 and 1995:
1996 1995 ---------- ---------- Net assets as reported.............................. $1,573,136 $1,722,504 Differences in basis of assets and liabilities: Deferred revenue.................................. 3,006 42,994 Accumulated depreciation.......................... (20,454) (25,556) Syndication costs................................. 213,094 213,094 Other............................................. 300 -- ---------- ---------- Net assets -- tax basis............................. $1,769,082 $1,953,036 ========== ==========
4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1995 and 1994, the Partnership paid the following amounts to affiliates of the general partner:
1995 1994 ------- ------- Property management fees................................. $91,253 $87,451 Reimbursement of expenses................................ 15,000 10,000
F-25 1261 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership insures Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1995 and 1994:
1995 1994 -------- -------- Net income as reported................................. $174,244 $300,722 Add (deduct): Deferred revenue..................................... (9,968) 34,081 Depreciation differences............................. (4,330) (9,118) -------- -------- Federal taxable income................................. $159,946 $325,685 ======== ======== Federal taxable income per limited partnership unit.... $ 2,111 $ 4,299 ======== ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1995 and 1994:
1995 1994 ---------- ---------- Net assets as reported.............................. $1,722,504 $1,948,260 Differences in basis of assets and liabilities: Deferred revenue.................................. 42,994 52,962 Accumulated depreciation.......................... (25,556) (21,226) Syndication costs................................. 213,094 213,094 ---------- ---------- Net assets -- tax basis............................. $1,953,036 $2,193,090 ========== ==========
F-26 1262 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1263 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1264 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1265 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1266 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(a) PURCHASES(b) HISTORICAL(c) ADJUSTMENTS(d) REORGANIZATION(e) ADJUSTMENTS(f) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1267 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1268 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1269 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1270 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1271 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(a) PURCHASES(b) TRANSACTIONS(c) HISTORICAL(d) ADJUSTMENTS(e) ADJUSTED(f) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(g) ADJUSTMENTS(h) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1272 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1273 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1274 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1275 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1276 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1277 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1278 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1279 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1280 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1281 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(a) PURCHASES(b) HISTORICAL(c) ADJUSTMENTS(d) ADJUSTED(e) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(f) ADJUSTMENTS(g) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1282 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1283 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1284 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1285 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1286 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1287 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(a) PURCHASES(b) TRANSACTIONS(c) HISTORICAL(d) ADJUSTMENTS(e) ADJUSTED(f) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(g) ADJUSTMENTS(h) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1288 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1289
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1290 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1291
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1292 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1293 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(a) PURCHASE(b) HISTORICAL(c) ADJUSTMENTS(d) ADJUSTED(e) ADJUSTMENTS(f) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(g) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1294 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1295
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1296 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1297 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1298 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1299
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1300 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(a) ADJUSTMENTS(b) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1301 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1302 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(a) ADJUSTMENTS(b) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 1303 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 1304 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 1305 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(a) ADJUSTMENTS(b) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 1306 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 1307 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 1308 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(a) ADJUSTMENTS(b) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 1309 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 1310 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(a) ADJUSTMENTS(b) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 1311 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 1312 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: CEDAR TREE INVESTORS LIMITED PARTNERSHIP Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of CEDAR TREE INVESTORS LIMITED PARTNERSHIP (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $55,289 in cash, or 1,429.25 Common OP Units of the Purchaser, or 2,211.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996, and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 1313 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 1314 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 1315 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 1316
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 1317
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 1318
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 1319
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1320 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 1321 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Chapel Hill, Limited in exchange for your choice of: 1,654.50 of our 8.0% Class Two Partnership Preferred Units; 1,069.25 of our Partnership Common Units; or $41,361 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 21% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $41,361 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns two properties. We cannot predict when the properties may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in two properties to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 1322 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-15 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-16 Summary Financial Information of AIMCO Properties, L.P............................ S-17 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-19 Summary Financial Information of Chapel Hill, Limited.................................... S-21 Comparative Per Unit Data.................... S-21 THE AIMCO OPERATING PARTNERSHIP................ S-22 RISK FACTORS................................... S-23 Risks to Unitholders Who Tender Their Units in the Offer............................... S-23 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-23 Offer Consideration May Not Equal the Value of Your Units............................ S-23 Conflicts of Interest with Respect to the Offer.................................... S-23 Possible Subsequent Offer at a Higher Price.................................... S-23 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-23 Holding Units May Result in Greater Future Value.................................... S-24 Offer Consideration May Not Represent Fair Market Value............................. S-24 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-24 Offer Consideration May Be Less Than Liquidation Value........................ S-24 Fairness Opinion of Third Party Relied on Information We Provided.................. S-24 Loss of Future Distributions from Your Partnership.............................. S-25 Possible Effect of the Other Exchange Offers on Us............................. S-25 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-25 Fundamental Change in Nature of Investment............................... S-25 Fundamental Change in Number of Properties Owned.................................... S-25 Lack of Trading Market for OP Units........ S-25 Uncertain Future Distributions............. S-26 Possible Reduction in Required Distributions on Preferred OP Units...... S-26 Possible Redemption of Preferred Stock..... S-26 Possible Recognition of Taxable Gains on OP Units.................................... S-26 Limitations on Effecting a Change of Control.................................. S-26 Limitation on Transfer of OP Units......... S-26 Limited Voting Rights of Holders of OP Units.................................... S-26 Market Prices for AIMCO's Securities May Fluctuate................................ S-26 Litigation Associated with Partnership Acquisitions............................. S-26 Dilution of Interests of Holders of OP Units.................................... S-27
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-27 Possible Increase in Control of Your Partnership by Us........................ S-27 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-27 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-27 Risk of Inability to Transfer Units for 12-Month Period.......................... S-27 Possible Change in Time Frame Regarding Sale of Property......................... S-27 Balloon Payments........................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-28 Background of the Offer...................... S-28 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59 Extension of Tender Period; Termination; Amendment.................................. S-59 Prorations................................... S-60 Fractional OP Units.......................... S-60
i 1323
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ----- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 Description of Class I Preferred Stock....... S-88 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1324 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties, Inc. and Residual Equities, and the company that manages each property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate Chapel Hill Apartments to be worth $4,840,000, less approximately $148,905 of deferred maintenance and investment. We estimate Chapelwood Apartments to be worth $5,174,000, less approximately $19,080 of deferred maintenance and S-1 1325 investment. It is possible that the sale of the properties could result in your receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's properties. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 1326 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000 based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages two properties to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-3 1327 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 1328 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTIES. It is not known when the properties owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the properties are sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns two properties. The general partner of your partnership continually considers whether the properties should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the properties will be sold or otherwise disposed of. However, there is no current plan or intention to sell the properties in the near future. BALLOON PAYMENTS. Your partnership has two balloon payments. Chapel Hill Apartments has approximately $2,909,188 of balloon payments due on its mortgage debt in November 2002. Chapelwood Apartments has approximately $3,014,426 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its properties prior to the balloon payment dates, or it will be in default and could lose the properties to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's properties while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of S-5 1329 the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's properties would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's properties in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Chapel Hill Apartments' mortgages are due in November 2002 and require balloon payments of $2,909,188. Chapelwood Apartments' mortgages are due in November 2002 and require balloon payments of $3,014,426. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its properties or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's properties. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's properties while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem S-6 1330 your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership did not pay any distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,309 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership did not pay any distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,673.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a S-7 1331 fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Properties. We are not proposing to try to liquidate the partnership and sell the partnership's properties and distribute the net proceeds. An arms-length sale of such properties after offering each for sale through licensed real estate brokers might be a better way to determine the true value of the properties rather than the method we chose. The sale of the properties and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the properties at the present time. At the current time we do not believe that a sale of the properties would be advantageous given market conditions, the condition of the properties and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the properties and the tax consequences to you and your partners upon a sale of the properties. For a description of certain risks of our offer, see "Risk Factors." S-8 1332 VALUATION OF UNITS We determined the offer consideration by estimating the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income since December 31, 1997. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated each of your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: CHAPEL HILL Net operating income........................................ $ 544,460 Capitalization rate......................................... 11.25% CHAPELWOOD Net operating income........................................ $ 582,087 Capitalization rate......................................... 11.25% ----------- Gross valuation of your partnership properties.............. $10,014,000 Plus: Cash and cash equivalents............................. 292,551 Plus: Other partnership assets, net of security deposits.... 434,338 Less: Mortgage debt, including accrued interest............. (7,519,364) Less: Accounts payable and accrued expenses................. (22,897) Less: Other liabilities..................................... (91,860) ----------- Partnership valuation before taxes and certain costs........ 3,106,768 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (167,985) Less: Closing costs......................................... (250,350) ----------- Estimated net valuation of your partnership................. 2,688,433 Percentage of estimated net valuation allocated to units.... 100% ----------- Estimated net valuation of units............................ 2,688,433 Total number of units............................. 65.0 ----------- Estimated valuation per unit................................ 41,361 =========== Cash consideration per unit................................. $ 41,361 ===========
S-9 1333 In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $41,361 by the $25 liquidation preference of each Preferred OP Unit to get 1,654.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $41,361 by a price of $38.69 to get 1,069.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's properties within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 41,361 Partnership Preferred Units................................. $ 41,361 Partnership Common Units.................................... $ 41,361 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 41,361 Estimated going concern value............................. $ 34,400 Alternative going concern value(1)........................ $ 38,836 Net book value (deficit).................................. $(64,677)
- --------------- (1) Assumes sale of properties when balloon payments are due instead of refinancing the mortgages. S-10 1334 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Chapel Hill, Limited is a Tennessee limited partnership which was formed on April 20, 1984 for the purpose of owning and operating two properties located in Indianapolis, Indiana, known as "Chapel Hill Apartments," and "Chapelwood Apartments." Chapel Hill Apartments consists of 148 apartments units. Chapelwood Apartments consists of 140 apartment units. Your partnership has no employees. As of September 30, 1998, there were 65 units of limited partnership interest issued and outstanding, which were held of record by 74 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 65 limited partnership units in 1984. Between January 1, 1993 and December 31, 1998 your partnership did not pay any cash distributions. Your partnership currently owns two properties. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in July 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's properties within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, Chapel Hill Apartments had a mortgage note outstanding of $3,453,201, payable to Marine Midland Bank, Bank of America, and FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding on the property of $124,780, on the same terms as the current mortgage note. As of December 31, 1998, Chapelwood Apartments had a mortgage note outstanding of $3,578,121 payable to Marine Midland Bank, Bank of America, and FNMA which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Chapelwood also has a second mortgage note outstanding of $128,300, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. S-11 1335 Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,654.50 of our Class Two Partnership Preferred Units; - 1,069.25 of our Partnership Common Units; or - $41,361 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 21% of the outstanding 65 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,654.50 Preferred OP Units, 1,069.25 Common OP Units, or $41,361 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 21% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that S-12 1336 proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. S-13 1337 Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general S-14 1338 partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $41,361 in cash, 1,654.50 Preferred OP Units or 1,069.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $41,361. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's properties and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's properties. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $39,809 for the fiscal year ended December 31, 1998. The property manager of Chapel Hill Apartments received management fees of $58,484 for the fiscal year ended December 31, 1998. The property manager of Chapelwood Apartments received management fees of $64,707 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's properties is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. S-15 1339 Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $568,714 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-16 1340 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-17 1341
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-18 1342 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-19 1343
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-20 1344 SUMMARY FINANCIAL INFORMATION OF CHAPEL HILL, LIMITED The summary financial information of Chapel Hill, Limited for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Chapel Hill, Limited for the years ended December 31, 1997 and 1996 is based on unaudited financial statements. The December 31, 1995, 1994, and 1993 information is based on unaudited financial information. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." CHAPEL HILL, LIMITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues............... $ 1,842,971 $ 1,778,622 $ 2,415,688 $ 2,295,793 $ 2,326,215 $ 2,237,699 $ 2,139,393 Net Income/(Loss)............ (278,502) (15,590) (26,750) (99,791) (243,111) (130,730) (99,677) Net Income per limited partnership unit........... (4,242) (237) (407) (1,520) (3,703) (1,991) (1,518) Distributions per limited partnership unit........... -- -- 48 38 31 -- -- Distributions per limited partnership unit (which represent a return of capital)...................
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance Sheet Data: Cash and Cash Equivalents.... $ 251,165 $ 291,041 $ 292,551 $ 224,194 $ 209,734 $ 348,683 $ 239,621 Real Estate, Net of Accumulated Depreciation... 4,277,854 4,524,743 4,468,855 4,747,535 5,038,849 5,200,203 5,548,474 Total Assets................. 5,124,099 5,429,576 5,319,976 5,511,627 5,783,248 6,141,827 6,431,163 Notes Payable................ 7,085,956 7,246,151 7,208,979 7,356,494 7,502,438 7,636,184 7,758,752 General Partners' Capital/ (Deficit).................... (22,857) (19,929) (20,072) (19,773) (18,750) (16,299) (14,991) Limited Partners' Capital/ (Deficit).................... (2,262,832) (1,972,927) (1,987,115) (1,957,493) (1,856,257) (1,613,552) (1,484,129) Partners' Capital/(Deficit).... (2,285,689) (1,992,856) (2,007,187) (1,977,266) (1,875,007) (1,629,850) (1,499,120) Total Distributions............ -- -- 3,171 2,468 2,046 -- -- Book value per limited partnership unit............. (35,164) (30,659) (30,880) (30,419) (28,846) (25,075) (23,063) Net increase (decrease) in cash and cash equivalents......... (41,386) 66,847 68,357 58,954 (138,949) 109,062 239,621 Net cash provided by operating activities................... 241,944 306,986 492,888 404,604 252,939 274,925 (209,978) Ratio of earnings to fixed charges...................... 0.44/1 0.97/1 0.96/1 0.85/1 0.65/1 0.81/1 0.85/1 0.44 0.97 0.96 0.85 0.65 0.81 0.85 LP Units Outstanding........... 65 LP%............................ 99% GP%............................ 1%
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING CHAPEL HILL, PARTNERSHIP LIMITED ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,673.13 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $3,309.00 $0
S-21 1345 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-22 1346 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's properties. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate Chapel Hill Apartments to be worth $4,840,000 although we believe the property needs approximately $148,905 of deferred maintenance and investment. It is possible, that the sale of the properties could result in you receiving more pretax cash per unit than our offers. We estimate Chapelwood Apartments to be worth $5,174,000 although we believe the property needs approximately $19,080 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's properties from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your S-23 1347 units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's properties. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the S-24 1348 fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,100 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Chapel Hill, Limited have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's properties, including the initial construction, which occurred in 1984. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a two properties to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. S-25 1349 We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-26 1350 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTIES. It is not known when the properties owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the properties are sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns two properties. The general partner of your partnership continually considers whether the properties should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the properties will be sold or otherwise disposed of. However, there is no current plan or intention to sell the properties in the near future. BALLOON PAYMENTS. Your partnership has two balloon payments. Chapel Hill Apartments has approximately $2,909,188 of balloon payments due on its mortgage debt in November 2002. Chapelwood has approximately $3,014,426 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its properties prior to the balloon payment dates, or it will be in default and could lose the properties to foreclosure. S-27 1351 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 5.269% interest, consisting of a 3.769% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-28 1352 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-29 1353 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's properties would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's properties in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Chapel Hill Apartments' mortgage notes are due on November 2002 and require balloon payments totaling $2,909,188. Chapelwood Apartments mortgage notes are due on November 2002 and require balloon payments totaling $3,014,426. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-30 1354 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the properties it owns. The general partner of your partnership considers sale of your partnership's properties from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the properties owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-31 1355 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership did not pay any distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,309 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership did not pay any distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,673.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-32 1356 - No Proposal to Sell the Properties. We are not proposing to try to liquidate the partnership and sell the partnership's properties and distribute the net proceeds. An arms-length sale of the properties after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the properties rather than the method we chose. The sale of the properties and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the properties would be advantageous given market conditions, the condition of the properties and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated each of your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-33 1357 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Chapel Hill Apartments $544,460 11.25% $ 4,839,644 Chapelwood Apartments 582,087 11.25% 5,174,107 ----------- Estimated Total Gross Property Value $10,013,751
- --------------- (1) The total net operating income is equal to total revenues of $2,409,237, less total expenses of $1,196,290 and recurring replacement costs of $86,400. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,688,433. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. CHAPEL HILL Net operating income........................................ $ 544,460 Capitalization rate......................................... 11.25% CHAPELWOOD Net operating income........................................ 582,087 Capitalization rate......................................... 11.25% ----------- Gross valuation of partnership properties................... 10,014,000 Plus: Cash and cash equivalents............................. 292,551 Plus: Other partnership assets, net of security deposits.... 434,338 Less: Mortgage debt, including accrued interest............. (7,519,364) Less: Accounts payable and accrued expenses................. (22,897) Less: Other liabilities..................................... (91,860) ----------- Partnership valuation before taxes and certain costs........ 3,106,768 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (167,985) Less: Closing costs......................................... (250,350) ----------- Estimated net valuation of your partnership................. 2,688,433 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 2,688,433 Total number of units............................. 65.0 ----------- Estimated valuation per unit................................ 41,361 =========== Cash consideration per unit................................. $ 41,361 ===========
S-34 1358 - In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $41,361 by the $25 liquidation preference of each Preferred OP Unit to get 1,654.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $41,361 by a price of $38.69 to get 1,069.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,761,183, of which, $2,688,433 or .47% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's properties has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from a loss of $15,590 for the nine months ended September 30, 1997 to a loss of $278,502 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." S-35 1359 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $41,361, based on a total estimated value of your partnership's properties of $10,013,751. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's properties. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,309 per year on the number of Preferred OP Units, or distributions of $2,673.13 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO S-36 1360 Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the S-37 1361 manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 41,361 Partnership preferred units................................. $ 41,361(1) Partnership common units.................................... $ 41,361(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 41,361 Estimated going concern value............................. $ 34,400 Net book value (deficit).................................. $(64,677) Alternative going concern value........................... $ 38,836(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of properties when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, S-38 1362 such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30% reflecting real estate risk and the relatively high leverage of approximately 75% of real estate value. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $34,400 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $64,677.09 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-39 1363 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $36,463 per unit, going concern value of $28,558 per unit and liquidation value of $32,609 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $4,898, $12,803 and $8,752. In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-40 1364 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
CHAPEL HILL CHAPELWOOD MANAGEMENTS TOWNHOMES ----------- ---------- Total Revenues.............................................. $1,172,941 $1,316,592 Operating Expenses.......................................... (549,447) (605,898) Replacement Reserves -- Net................................. (92,762) (88,915) Debt Service................................................ (391,612) (405,779) Capital Expenditures........................................ (133,200) (13,360) ---------- ---------- Net Cash Flow..................................... $ 5,920 $ 202,640 ========== ==========
S-41 1365 The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-42 1366 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11.25%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $167,985. Stanger observed that your partnership liquidation value of $2,688,433 was divided by the total units outstanding of 65 to provide the liquidation value per unit of $41,361. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,125,547 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $90,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.75%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.8%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 65 to achieve management's estimate of going concern value of $34,400 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $41,361 per unit is equal to management's estimate of liquidation value, and reflects a 20% premium to management's estimate of going concern value. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals the recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year preferred stock of AIMCO with a dividend equal to the dividend on the Preferred OP Units. Stanger observed that the ten day price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497% shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. S-43 1367 Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, direct capitalization rates of 10.5% to 10.75%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate ranging from 11.0% to 11.25%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted the estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13.1% as described above), plus adjustments reflecting the additional risk associated with mortgage debt equal to approximately 75% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $36,362, $28,558 and $32,609 representing discounts to the offer price of 12%, 31% and 21%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also S-44 1368 relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $12,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-45 1369 YOUR PARTNERSHIP GENERAL Chapel Hill, Limited, is a Tennessee limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 74 limited partners of your partnership and a total of 65 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the properties described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on April 20, 1984 for the purpose of owning an apartment properties located in Indianapolis, Indiana, known as "Chapel Hill Apartments," and "Chapelwood Apartments." Chapel Hill Apartments is owned by the partnership but is subject to a mortgage. Chapel Hill Apartments consists of 148 apartment units. There are 28 one-bedroom apartments, 80 two-bedroom apartments and 40 three-bedroom apartments. Chapel Hill Apartments property had an average occupancy rate of approximately 93.03% in 1998, 95.27% in 1997 and 95.27% in 1996. Chapelwood Apartments is owned by the partnership but is subject to a mortgage. Chapelwood Apartments consists of 140 apartment units. There are 24 one-bedroom apartments, 32 two-bedroom apartments and 68 three-bedroom apartments. Chapelwood Apartments had an average occupancy rate of approximately 91.36% in 1998, 90.71% in 1997 and 90.71% in 1996. Your partnership's properties provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $167,985 and are intended to be paid for out of cash flow or borrowings. Renovation items include drives and parking lot, exterior lighting, and landscaping and irrigation. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $654 $621 $628 $604 $600
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are as follows:
1998 1998 TOTAL TAX REAL ESTATE 1998 ASSESSED AVERAGE 1999 PROJECTED TAXES PROPERTY VALUE TAX RATE TAX RATE ----------- -------------- -------- -------------- Chapel Hill................................... 112,793 1,270,200 8.88% 9.32% Chapelwood.................................... 133,948 1,508,440 8.88% 9.32%
PROPERTY MANAGEMENT Your partnership's properties are managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's properties, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. S-46 1370 INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the properties specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's properties in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's properties primarily because it expects the propertys' operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy at Chapel Hill was 93% and Chapelwood was 91% and the weighted average rental rate was $660 at December 31, 1998, compared to 91% and $654, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy to remain strong in the near future. In addition, the general partner noted that it expects to spend approximately $167,985 for capital expenditures and improvements at the property in 1999 to enhance the properties through renovations at the pool area, improvements at the entrances, and upgrades in landscaping. These expenditures are expected to improve the desirability of the properties to tenants. The general partner does not believe that a sale either of the properties at the present time would adequately reflect either of the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the properties for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase either of the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, Chapel Hill Apartments had a current mortgage note outstanding of $3,453,201, payable S-47 1371 to Marine Midland Bank, Bank of America and FMHA, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Chapel Hill Apartments also has a second mortgage note outstanding of $124,785, on the same terms as the current mortgage note. As of December 31, 1998, Chapelwood Apartments had a current mortgage note outstanding of $3,578,121, payable to Marine Midland Bank, Bank of America and FMHA, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Chapelwood Apartments also has a second mortgage note outstanding of $129,300, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $4,888,000 of limited partnership units in 1984 for $75,200 per unit. Your partnership currently owns two apartment properties. Your partnership used the funds raised to purchase its properties and it has expended the funds so raised many years ago. Your partnership currently owns the properties described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2019, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and S-48 1372 only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $75,200.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 0 0 0 1994.................................. 0 0 0 0 1995.................................. 31.48 41 77.12 501.25 1996.................................. 37.96 49 93.03 604.75 1997.................................. 48.78 63 119.54 777.00 1998.................................. 0 0 0 0 ------- ---- ------ --------- Total....................... 118.22 153 289.69 1,883.00
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 1 1.86% 1 1998......................... 1 1.86% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 6.81% interest in your partnership, including 5.0 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any S-49 1373 of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $ 78,527 1995........................................................ 107,445 1996........................................................ 81,048 1997........................................................ 84,896 1998........................................................ 39,808
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- --------------- 1994........................................................ Not available 1995........................................................ Not available 1996........................................................ $ 116,896 1997........................................................ 119,469 1998........................................................ 123,191
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 1374 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
CHAPEL HILL, LIMITED ----------------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, --------------------------- ----------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Cash and Cash Equivalents........... $ 251,165 $ 291,041 $ 292,551 $ 224,194 $ 209,734 $ 348,683 $ 239,621 Land & Building......... 10,048,755 9,826,375 9,888,448 9,696,579 9,533,433 9,277,337 9,292,270 Accumulated Depreciation.......... (5,770,901) (5,301,632) (5,419,593) (4,949,044) (4,494,584) (4,077,134) (3,743,796) Other Assets............ 795,000 613,792 558,370 539,898 534,665 592,941 643,068 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Assets.... 5,174,099 5,429,576 5,319,976 5,511,627 5,783,248 6,141,827 6,431,163 ============ ============ ============ ============ ============ ============ =========== Notes Payable........... 7,085,956 7,246,151 7,208,979 7,356,494 7,502,438 7,636,184 7,758,752 Other Liabilities....... 323,832 176,281 118,184 132,399 155,817 135,493 171,531 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Liabilities... 7,409,788 7,422,432 7,327,163 7,488,893 7,658,255 7,771,677 7,930,283 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Partners Deficit........ (2,285,689) (1,992,856) (2,007,187) (1,977,266) (1,875,007) (1,629,850) (1,499,120) ============ ============ ============ ============ ============ ============ ===========
CHAPEL HILL, LIMITED ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,731,680 $1,663,682 $2,261,007 $2,147,082 $2,170,553 $2,086,094 $2,074,155 Other Income................... 111,291 114,940 154,681 148,711 155,662 151,605 65,238 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... 1,842,971 1,778,622 2,415,688 2,295,793 2,326,215 2,237,699 2,139,393 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. 1,031,659 736,166 1,052,313 960,268 1,139,355 942,290 893,395 General & Administrative....... 75,227 62,583 86,403 91,477 89,073 116,713 71,129 Depreciation................... 351,308 352,588 470,549 454,430 417,450 391,566 361,236 Interest Expense............... 494,764 507,445 674,526 675,042 688,361 674,266 685,064 Property Taxes................. 168,515 135,430 158,647 214,367 235,067 243,594 228,042 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... 2,121,473 1,794,212 2,442,438 2,395,384 2,569,326 2,368,429 2,239,070 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (loss) before extraordinary items.......... (278,502) (15,590) (26,750) (99,791) (243,111) (130,730) (99,677) Extraordinary Items............ -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (loss).............. (278,502) (15,590) (26,750) (99,791) (243,111) (130,730) (99,677) ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. (4,242) (237) (407) (1,520) (3,703) (1,991) (1,518) ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. -- -- 48 38 31 -- -- ========== ========== ========== ========== ========== ========== ==========
S-51 1375 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized a net loss of $278,502 for the nine months ended September 30, 1998, compared to a net loss of $15,590 for the nine months ended September 30, 1997. The decrease in net income of $262,912 was primarily the result of an increase in operating expenses during 1998. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,842,971 for the nine months ended September 30, 1998, compared to $1,778,622 for the nine months ended September 30, 1997, an increase of $64,349 or 3.62%. The partnership increased rental rates by an average of 3.9% during the period. This increase is offset by a decrease in other income of $3,649 due to fewer lease cancellation and pet fees. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $1,200,174 for the nine months ended September 30, 1998, compared to $871,596 for the nine months ended September 30, 1997, an increase of $328,578 or 37.70%. The increase is primarily due to an increase in accrued expenses for the interim period and an increase in repairs and maintenance at both properties. Management expenses totaled $38,640 for the nine months ended September 30, 1998, compared to $41,012 for the nine months ended September 30, 1997, a decrease of $2,372 or 6.14% as management fees are calculated as a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $62,583 for the nine months ended September 30, 1998 compared to $75,227 for the nine months ended September 30, 1997, a decrease of $12,644 or 16.81%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $494,764 for the nine months ended September 30, 1998, compared to $507,445 for the nine months ended September 30, 1997, for a decrease of $12,681, or 2.50%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized a net loss of $26,750 for the year ended December 31, 1997, compared to a net loss of $99,791 for the year ended December 31, 1996. The increase in net income of $73,041, or 73.20% was primarily the result of an increase in rental revenues and a decrease in property taxes offset by an increase in other operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,415,688 for the year ended December 31, 1997, compared to $2,295,793 for the year December 31, 1996, an increase of $119,895, or 5.22%. The increase is primarily due to increases in the average occupancy levels and the rental rates at both S-52 1376 properties. The partnership increased rental rates by 1.7% and occupancy increased by .5% to 91.8%. Other income also increased 4% due to increased income from legal suits to collect outstanding rent. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $1,210,960 for the year ended December 31, 1997, compared to $1,174,635 for the year ended December 31, 1996, an increase of $36,325 or 3.09%. The increase is due to increases in periodical and newspaper advertising to help increase occupancy rates and personnel expenses. Management expenses totaled $119,469 for the year ended December 31, 1997, compared to $116,896 for the year ended December 31, 1996, an increase of $2,573, or 2.20%, as management fees are calculated as a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $86,403 for the year ended December 31, 1997 compared to $91,477 for the year ended December 31, 1996, a decrease of $5,074 or 5.55%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $674,526 for the year ended December 31, 1997, compared to $675,042 for the year ended December 31, 1996, a decrease of $516 or 0.08%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net loss of $99,791 for the year ended December 31, 1996, compared to net loss of $243,111 for the year ended December 31, 1995. The increase in net income of $143,320 or 58.95% was primarily the result of a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,295,793 for the year ended December 31, 1996, compared to $2,326,215 for the year ended December 31, 1995, a decrease of $30,422, or 1.31%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $1,174,635 for the year ended December 31, 1996, compared to $1,374,422 for the year ended December 31, 1995, a decrease of $199,787 or 15.72%. The decrease is primarily due to a decrease in maintenance expense as an exterior painting project was completed at one of the properties in 1995. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $91,477 for the year ended December 31, 1996 compared to $89,073 for the year ended December 31, 1995, an increase of $2,404 or 2.70%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $675,042 for the year ended December 31, 1996, compared to $688,381 for the year ended December 31, 1995, a decrease of S-53 1377 $13,339, or 1.94%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $251,165 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $310,384 was $7,085,956. The mortgages require monthly payments of approximately $66,449 until November 2002. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 1378 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 21% of the outstanding 65 units of your partnership (up to 13.65 units) for consideration per unit of (i) 1,654.50 Preferred OP Units, (ii) 1,069.25 Common OP Units, or (iii) $41,361 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below),although you will be entitled to retain any distribution you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 1379 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 1380 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 1381 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 1382 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 1383 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 21% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 21% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 21% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 21%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 1384 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 1385 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 1386 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 1387 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 1388 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 1389 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 1390 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 1391 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 1392 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 1393 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 1394 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 1395 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Tennessee law for the as a Delaware limited partnership. The AIMCO purpose of owning and managing Chapel Hill Operating Partnership owns interests (either Apartments and Chapelwood Apartments. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's properties. Partnership is to conduct any business that Subject to restrictions contained in your may be lawfully conducted by a limited partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all act necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 1396 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 65 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and have subsidiaries or other persons in which it other transactions with per- has an equity investment,
S-73 1397 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sons who are partners or who are affiliates and such persons may borrow funds from the of partners. Any and all compensation paid AIMCO Operating Partnership, on terms and to such persons in connection with services conditions established in the sole and performed for your partnership must be absolute discretion of the general partner. commensurate with that which would be paid To the extent consistent with the business to an independent person for similar purpose of the AIMCO Operating Partnership services and all agreements must be in and the permitted activities of the general writing. The partnership may not make loans partner, the AIMCO Operating Partnership may to any partners but the general partners may transfer assets to joint ventures, limited make loans to your partnership; provided liability companies, partnerships, that the interest and fees received by the corporations, business trusts or other general partners in connection with such business entities in which it is or thereby loans are not in excess of the amounts which becomes a participant upon such terms and would be charged by an unrelated bank and subject to such conditions consistent with the general partners do not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each limited partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partners. Your partnership furnishes such business, residence or mailing address of information to any limited partner the general partner and each other OP requesting the same in writing, upon payment Unitholder. of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The general partner of your partnership All management powers over the business and manages and controls your partnership and affairs of the AIMCO Operating Partnership all aspects of its business. The general are vested in AIMCO-GP, Inc., which is the partner has full, exclusive and complete general partner. No OP Unitholder has any authority and discretion in the management right to participate in or exercise control and control of the business and the or management power over the busi- activities
S-74 1398 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP and operations of your partnership. In the ness and affairs of the AIMCO Operating exercise of its authority, it makes all Partnership. The OP Unitholders have the decisions affecting the conduct of the right to vote on certain matters described business of your partnership. Limited under "Comparison of Your Units and AIMCO OP partners may not take part in the management Units -- Voting Rights" below. The general of the business, affairs and operations of partner may not be removed by the OP your partnership, transact any business for Unitholders with or without cause. your partnership, have any power, right or authority to enter into any agreement, In addition to the powers granted a general execute or sign documents for, make partner of a limited partnership under representation on behalf of nor to otherwise applicable law or that are granted to the act so as to bind your partnership in any general partner under any other provision of manner. the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship, excepting only acts of malfeasance, indemnification of AIMCO, or any director or gross negligence or actual officer of AIMCO (in its capacity as the misrepresentation. In addition, the general previous general partner of the AIMCO partner and its affiliates are entitled to Operating Partnership), the general partner, indemnification by your partnership for any any officer or director of general partner and all acts performed by them in the good or the AIMCO Operating Partnership and such faith belief that the act or omission was in other persons as the general partner may the best interests of your partnership and designate from and against all losses, which are reasonably within the scope of the claims, damages, liabilities, joint or authority conferred upon them by your several, expenses (in-
S-75 1399 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership's agreement of limited cluding legal fees), fines, settlements and partnership or by your partnership, other amounts incurred in connection with excepting only acts of malfeasance, gross any actions relating to the operations of negligence or actual misrepresentation; pro- the AIMCO Operating Partnership, as set vided, however, that such indemnity will be forth in the AIMCO Operating Partnership paid out of, and only to the extent of, Agreement. The Delaware Limited Partnership partnership assets. Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause and the business and affairs of the AIMCO elect a successor general partner upon a Operating Partnership. The general partner vote of the limited partners owning a may not be removed as general partner of the majority of the outstanding units. A general AIMCO Operating Partnership by the OP partner may not transfer, assign, sell, Unitholders with or without cause. Under the withdraw or otherwise dispose of its AIMCO Operating Partnership Agreement, the interest unless it obtains the prior written general partner may, in its sole discretion, consent of those persons owning more than prevent a transferee of an OP Unit from 50% of the units and satisfies other becoming a substituted limited partner conditions set forth in your partnership's pursuant to the AIMCO Operating Partnership agreement of limited partnership. Such Agreement. The general partner may exercise consent is also necessary for the approval this right of approval to deter, delay or of a new general partner. A limited partner hamper attempts by persons to acquire a may not transfer his interests without the controlling interest in the AIMCO Operating written consent of the general partner which Partnership. Additionally, the AIMCO may be withheld at the sole discretion of Operating Partnership Agreement contains the general partner. restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the outstanding partnership and as required by law. Amend- Common OP Units, excluding AIMCO ments of specified provisions of your partnership's
S-76 1400 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership may be made and certain other limited exclusions (a only with the prior written consent of all "Majority in Interest"). Amendments to the partners. Other amendments must be approved AIMCO Operating Partnership Agreement may be by the limited partners owning more than 50% proposed by the general partner or by of the units. holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $48,000 annually. Moreover, the its capacity as general partner of the AIMCO general partner or certain affiliates may be Operating Partnership. In addition, the entitled to compensation for additional AIMCO Operating Partnership is responsible services rendered. for all expenses incurred relating to the AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of losses of your liability of the OP Unitholders for the partnership beyond its obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-77 1401 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties In general, your partnership's agreement of Unless otherwise provided for in the limited partnership and the AIMCO Operating relevant partnership agreement, Delaware law Partnership Agreement have limitations on generally requires a general partner of a the liability of the general partner but Delaware limited partnership to adhere to such limitations differ in terms and provide fiduciary duty standards under which it owes more protection for the general partner of its limited partners the highest duties of the AIMCO Operating Partnership. Under your good faith, fairness and loyalty and which partnership's agreement of limited generally prohibit such general partner from partnership, the general partner has taking any action or engaging in any fiduciary responsibilities to your transaction as to which it has a conflict of partnership in respect of the funds and interest. The AIMCO Operating Partnership assets of your partnership and will take all Agreement expressly authorizes the general actions which may be necessary or partner to enter into, on behalf of the appropriate for the proper maintenance and AIMCO Operating Partnership, a right of operation of your partnership's property in first opportunity arrangement and other accordance with the provisions of your conflict avoidance agreements with various partnership's agreement of limited affiliates of the AIMCO Operating partnership and in accordance with Partnership and the general partner, on such applicable laws and regulations. The general terms as the general partner, in its sole partner will manage and control the affairs and absolute discretion, believes are of your partnership to the best of its advisable. The AIMCO Operating Partnership abilities and use its best efforts to carry Agreement expressly limits the liability of out the business of your partnership as set the general partner by providing that the forth in your partnership's agreement of general partner, and its officers and limited partnership. However, the general directors will not be liable or accountable partner may engage in or hold interests in in damages to the AIMCO Operating other business ventures of every kind and Partnership, the limited partners or as- description for its own account including, signees for errors in judgment or mistakes without limitation, ventures such as those of fact or law or of any act or omission if undertaken by your partnership and the the general partner or such director or partners shall have no rights in and to such officer acted in good faith. See independent business venture or the income "Description of OP Units -- Fiduciary and profits derived therefrom. Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the
S-78 1402 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating
S-79 1403 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, AIMCO Operating Partnership OP Unitholders have voting upon the vote of the limited Agreement, the holders of rights only with respect to partners owning a majority the Preferred OP Units will certain limited matters such of the outstanding units, have the same voting rights as certain amendments and the limited partners may as holders of the Common OP termination of the AIMCO amend your partnership's Units. See "Description of Operating Partnership agreement of limited OP Units" in the accompany- Agreement and certain partnership, subject to ing Prospectus. So long as transactions such as the certain limitations; any Preferred OP Units are institution of bankruptcy dissolve and terminate your outstanding, in addition to proceedings, an assignment partnership; remove a any other vote or consent of for the benefit of creditors general partner for cause; partners required by law or and certain transfers by the and approve or disapprove by the AIMCO Operating general partner of its the sale of all or Partnership Agreement, the interest in the AIMCO substantially all of the affirmative vote or consent Operating Partnership or the assets of your partnership. of holders of at least 50% admission of a successor of the outstanding Preferred general partner. A general partner may cause OP Units will be necessary the dissolution of the your for effecting any amendment Under the AIMCO Operating partnership by retiring when of any of the provisions of Partnership Agreement, the there are no remaining the Partnership Unit general partner has the general partners unless, the Designation of the Preferred power to effect the limited partners owning more OP Units that materially and acquisition, sale, transfer, the 50% of the then out- adversely affects the rights exchange or other standing units elect a new or preferences of the disposition of any assets of general partner who decides holders of the Preferred OP the AIMCO Operating to continue your partnership Units. The creation or Partnership (including, but with the approval of the issuance of any class or not limited to, the exercise limited partners owning more series of partnership units, or grant of any conversion, than 50% of the then including, without option, privilege or outstanding units. limitation, any partner- subscription right or any ship units that may have other right available in In general, you have greater rights senior or superior to connection with any assets voting rights in your the Preferred OP Units, at any time held by the partnership than you will shall not be deemed to AIMCO Operating Partnership) have as an OP Unitholder. OP materially adversely affect or the merger, Unitholders cannot remove the rights or preferences of consolidation, the general partner of the the holders of Preferred OP reorganization or other AIMCO Operating Partnership. Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi-
S-80 1404 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion cash funds as the general and from time to time on or determine, of Available Cash partner may, in its discre- after the fifth anniversary (as defined in the AIMCO tion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Pre- Cumulative Preferred
S-81 1405 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock. Such distributions ferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be and the Pre- Oper-
S-82 1406 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS substituted as a limited ferred OP Units are not ating Partnership Agreement partner by such person if: listed on any securities restricts the (1) the interest being exchange. The Preferred OP transferability of the OP acquired by the assignee Units are subject to Units. Until the expiration consists of an integral restrictions on transfer as of one year from the date on multiple of half units, (2) set forth in the AIMCO which an OP Unitholder a written assignment has Operating Partnership acquired OP Units, subject been duly executed and Agreement. to certain exceptions, such acknowledged by the assignor OP Unitholder may not and assignee, (3) the Pursuant to the AIMCO transfer all or any por- written approval of the Operating Partnership tion of its OP Units to any general partner which may be Agreement, until the transferee without the withheld in the sole and expiration of one year from consent of the general absolute discretion of the the date on which a holder partner, which consent may general partner has been of Preferred OP Units be withheld in its sole and granted, (4) the assignor or acquired Preferred OP Units, absolute discretion. After the assignee pays a transfer subject to certain the expiration of one year, fee, (5) the transfer will exceptions, such holder of such OP Unitholder has the not result in a termination Preferred OP Units may not right to transfer all or any of your partnership for tax transfer all or any portion portion of its OP Units to purposes and (6) the of its Preferred OP Units to any person, subject to the assignor and assignee have any transferee without the satisfaction of certain con- complied with such other consent of the general ditions specified in the conditions as set forth in partner, which consent may AIMCO Operating Partnership your partnership's agreement be withheld in its sole and Agreement, including the of limited partnership. absolute discretion. After general partner's right of There are no redemption the expiration of one year, first refusal. See rights associated with your such holders of Preferred OP "Description of OP Units -- units. Units has the right to Transfers and Withdrawals" transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred elect to cause AIMCO to
S-83 1407 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 1408 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 1409 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 1410 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 1411 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 1412 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 1413 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 1414 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 1415 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-92 1416 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 1417 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $81,048 in 1996, $84,896 in 1997 and $39,808 in 1998. The property manager received management fees of $116,896 in 1996, $119,469 in 1997 and $123,190 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 1418 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $568,714 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $12,000 Other....................................................... $ 8,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a Bank of America's reference rates, at the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 1419 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-96 1420 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Balance Sheet as of December 31, 1997 and 1996 (unaudited)............................................... F-7 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996 (unaudited)............................................... F-8 Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited)................................. F-9 Notes to Financial Statements............................... F-10
F-1 1421 CHAPEL HILL, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 251,165 Other assets................................................ 595,080 Investment property Land...................................................... $ 375,000 Building and related personal property.................... 9,673,755 ----------- 10,048,755 ----------- Less: Accumulated depreciation............................ (5,770,901) 4,277,854 ----------- ----------- Total assets...................................... $ 5,124,099 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... $ 323,832 Notes payable............................................... 7,085,956 Partners' deficit................................. (2,285,689) ----------- Total liabilities and partners' deficit........... $ 5,124,099 ----------- -----------
See Accompanying Note to the Financial Statements. F-2 1422 CHAPEL HILL, LIMITED CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- Revenues: Rental income............................................. $1,731,680 $1,663,682 Other income.............................................. 111,291 114,940 ---------- ---------- Total revenues.................................... 1,842,971 1,778,622 Expenses: Operating expenses........................................ 1,106,886 798,749 Depreciation expense...................................... 351,308 352,588 Interest expense.......................................... 494,764 507,445 Property tax expense...................................... 168,515 135,430 ---------- ---------- Total expenses.................................... 2,121,473 1,794,212 Net income........................................ $ (278,502) $ (15,590) ========== ==========
See Accompanying Note to the Financial Statements. F-3 1423 CHAPEL HILL, LIMITED CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- Operating activities: Net income................................................ $(278,502) $ (15,590) Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 351,308 352,588 Changes in accounts: Receivables and deposits and other assets.............. (36,510) (73,894) Accounts payable and accrued expenses.................. 205,648 43,882 --------- --------- Net cash provided by (used in) operating activities...................................... 241,944 306,986 --------- --------- Investing activities: Property improvements and replacements.................... (160,307) (129,796) --------- --------- Net cash provided by (used in) investing activities....... (160,307) (129,796) --------- --------- Financing activities: Payments on mortgage...................................... (123,023) (110,343) Partners' distributions................................... -- -- --------- --------- Net cash provided by (used in) financing activities....... (123,023) (110,343) --------- --------- Net increase (decrease) in cash and cash equivalents...... (41,386) 66,847 Cash and cash equivalents at beginning of year............ 292,551 224,194 --------- --------- Cash and cash equivalents at end of period................ $ 251,165 $ 291,041 ========= =========
See Accompanying Note to the Financial Statements. F-4 1424 CHAPEL HILL LIMITED NOTE TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Chapel Hill Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1425 CHAPEL HILL, LIMITED FINANCIAL STATEMENTS -- UNAUDITED DECEMBER 31, 1997 AND 1996 F-6 1426 CHAPEL HILL, LIMITED BALANCE SHEET -- UNAUDITED ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 292,551 $ 224,194 Receivables and deposits.................................... 109,714 91,126 Restricted escrows (Note B)................................. 306,639 294,035 Other assets................................................ 142,217 154,737 Investment properties (Note C): Land...................................................... 375,000 375,000 Buildings and related personal property................... 9,513,448 9,321,579 ----------- ----------- 9,888,448 9,696,579 Less accumulated depreciation............................. (5,419,593) (4,949,044) ----------- ----------- 4,468,855 4,747,535 ----------- ----------- $ 5,319,976 $ 5,511,627 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 22,897 $ 33,228 Tenant security deposit liabilities....................... 44,439 47,698 Other liabilities......................................... 50,848 51,473 Mortgage notes payable (Note C)........................... 7,208,979 7,356,494 Partners' deficit........................................... (2,007,187) (1,977,266) ----------- ----------- $ 5,319,976 $ 5,511,627 =========== ===========
See accompanying notes to financial statements. F-7 1427 CHAPEL HILL, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT -- UNAUDITED
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 2,261,007 $ 2,147,082 Other income.............................................. 154,681 148,711 ----------- ----------- Total revenues.................................... 2,415,688 2,295,793 ----------- ----------- Expenses: Operating (Note D)........................................ 1,052,313 960,268 General and administrative (Note D)....................... 86,403 91,477 Depreciation.............................................. 470,549 454,430 Interest.................................................. 674,526 675,042 Property taxes............................................ 158,647 214,367 ----------- ----------- Total expenses.................................... 2,442,438 2,395,584 ----------- ----------- Net loss.................................................... (26,750) (99,791) Distributions to partners................................... (3,171) (2,468) Partners' deficit at beginning of year...................... (1,977,266) (1,875,007) ----------- ----------- Partners' deficit at end of year............................ $(2,007,187) $(1,977,266) =========== ===========
See accompanying notes to financial statements. F-8 1428 CHAPEL HILL, LIMITED STATEMENT OF CASH FLOWS -- UNAUDITED
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss.................................................. $ (26,750) $ (99,791) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 470,549 454,430 Amortization of discounts and loan costs............... 94,022 79,854 Change in accounts: Receivables and deposits............................. (18,588) (5,147) Other assets......................................... (12,130) (1,324) Accounts payable..................................... (10,331) (35,585) Tenant security deposit liabilities.................. (3,259) 2,997 Other liabilities.................................... (625) 9,170 --------- --------- Net cash provided by operating activities......... 492,888 404,604 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (191,869) (163,146) Net receipts to restricted escrows........................ (12,604) 21,026 --------- --------- Net cash used in investing activities............. (204,473) (142,120) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (216,887) (201,062) Distributions to partners................................. (3,171) (2,468) --------- --------- Net cash used in financing activities............. (220,058) (203,530) --------- --------- Net increase in cash and cash equivalents................... 68,357 58,954 Cash and cash equivalents at beginning of year.............. 224,194 165,240 --------- --------- Cash and cash equivalents at end of year.................... $ 292,551 $ 224,194 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 580,503 $ 596,327 ========= =========
See accompanying notes to financial statements. F-9 1429 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 -- UNAUDITED NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Chapel Hill, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 24, 1975. The Partnership owns and operates Chapel Woods Townhouses a 140 townhouse complex, and Chapel Hill Apartments, a 148 unit apartment complex, both located in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $121,706 and $146,355, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-10 1430 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 -- UNAUDITED Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $306,639 and $294,035, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $64,840, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,265,278 $7,482,165 Second mortgage note payable in interest only monthly installments of $1,609, at a rate of 7.60% with principal due November 2002; collateralized by land and buildings... 254,085 254,085 ---------- ---------- Principal balance at year end............................... 7,519,363 7,736,250 Less unamortized discount................................... (310,384) (379,756) $7,208,979 $7,356,494 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998.................................................... $ 233,957 1999.................................................... 252,370 2000.................................................... 272,232 2001.................................................... 293,659 2002.................................................... 6,467,145 ---------- $7,519,363 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In F-11 1431 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 -- UNAUDITED addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- -------- -------- Management fee.................................. $119,469 $116,896 Partnership administration fee.................. $ 48,000 $ 48,000 Reimbursement for services to affiliates........ $ 36,247 $ 33,048 Construction oversight fee...................... $ 649 $ --
F-12 1432 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO has contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1433 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1434 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1435 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1436 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1437 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1438 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1439 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1440 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1441 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1442 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1443 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1444 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1445 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1446 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1447 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1448 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1449 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1450 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1451 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1452 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1453 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1454 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1455 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1456 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1457 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1458 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1459
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1460 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1461
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1462 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1463 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1464 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1465
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1466 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1467 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1468 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1469
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1470 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1471 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1472 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 1473 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 1474 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 1475 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 1476 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 1477 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 1478 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 1479 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 1480 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 1481 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 1482 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: CHAPEL HILL LIMITED Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of CHAPEL HILL LIMITED (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $41,361 in cash, or 1,069.25 Common OP Units of the Purchaser, or 1,654.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 1483 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 1484 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 1485 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 1486
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 1487
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 1488
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 1489
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1490 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 1491 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Coastal Commons Limited Partnership in exchange for your choice of: 452.50 of our 8.0% Class Two Partnership Preferred Units; 292.50 of our Partnership Common Units; or $11,312 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $11,312 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 1492 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Coastal Commons Limited Partnership................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF COASTAL COMMONS LIMITED PARTNERSHIP.................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 Overview..................................... S-51 Results of Operations........................ S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58
i 1493
PAGE ----- Prorations................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1494 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Realty & GP Real Estate Services II, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $9,200,000, less approximately $472,263 of deferred maintenance and investment. It is possible, that the sale of the property could result in you receiving more per unit than in our offer. S-1 1495 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 1496 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2014 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages [one property] to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $905 per year on the number of Preferred OP Units, or distributions of $731.25 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 1497 partnership's units. During 1998, your partnership paid cash distributions of $1,113.75 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 1498 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's S-5 1499 expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in July 2002. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $1,113.75 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any S-6 1500 distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $905 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,113.75 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $731.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. S-7 1501 - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 1502 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income since December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.10% per annum, which resulted in an increase from the initial capitalization rate of 0.50%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.32%, resulting in a final capitalization rate of 10.18%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 937,000 Capitalization rate......................................... 10.18% ----------- Gross valuation of partnership's properties(1).............. $ 9,200,000 Plus: Cash and cash equivalents............................. 226,675 Plus: Other partnership assets, net of security deposits.... 191,835 Less: Mortgage debt, including accrued interest............. (6,283,500) Less: Accounts payable and accrued expenses................. (21,568) Less: Other liabilities..................................... (49,902) ----------- Partnership valuation before taxes and certain costs........ 3,263,540 Less: Disposition fees...................................... (276,000) Less: Extraordinary capital expenditures and deferred maintenance............................................... (472,263) Less: Closing costs......................................... (230,000) ----------- Estimated net valuation of your partnership................. 2,285,277 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 2,262,424 Total number of units............................. 200.0 ----------- Estimated valuation per unit................................ 11,312 =========== Cash consideration per unit................................. $ 11,312 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $11,312 by the $25 liquidation preference of each Preferred OP Unit to get 452.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $11,312 by a price of $38.69 to get 292.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 1503 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $11,312 Partnership Preferred Units................................. $11,312 Partnership Common Units.................................... $11,312 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $11,312 Estimated going concern value............................. $11,174 Net book value (deficit).................................. $(8,925)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. S-10 1504 We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Coastal Commons Limited Partnership is a South Carolina limited partnership which was formed on June 29, 1984 for the purpose of owning and operating a single apartment property located in Mt. Pleasant, South Carolina, known as "Hibben Ferry Apartments." Hibben Ferry Apartments consists of 240 apartment units and was built in 1983. Your partnership has no employees. As of September 30, 1998, there were 200 units of limited partnership interest issued and outstanding, which were held of record by 229 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $15,300,000 of limited partnership units in 1984. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $9,049.75 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2014, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $6,177,044, payable to First Union National Bank, which bears interest at the rate of 8.08%. The mortgage debt is due on July 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 1505 THE OFFER In exchange for each of your units, we are offering you a choice of: - 452.50 of our Class Two Partnership Preferred Units; - 292.50 of our Partnership Common Units; or - $11,312 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 200 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 452.50 Preferred OP Units, 292.50 Common OP Units, or $11,312 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 1506 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 1507 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $11,312 in cash, 452.50 Preferred OP Units or 292.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 1508 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $11,312. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $12,000 for the fiscal year ended December 31, 1998. The property manager received management fees of $92,212 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $565,600 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 1509 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 1510
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 1511 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- --------- 120,368 142,400 --------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- --------- (913) (9,075) Minority interests in service company business............ -- (10) --------- --------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- --------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- --------- Net income........................................ $ 24,703 $ (36,125) ========= ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 1512
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 1513 SUMMARY FINANCIAL INFORMATION OF COASTAL COMMONS LIMITED PARTNERSHIP The summary financial information of Coastal Commons Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Coastal Commons Limited Partnership for the year ended December 31, 1997 is based on audited financial statements and for the year ended December 31, 1996 is based on unaudited financial statements. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial statements which are not included in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." COASTAL COMMONS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues....................... $ 1,363 $ 1,327 $ 1,787 $ 1,708 $ 1,580 $ 1,566 $ 1,679 Net Income/(Loss).................... 131 87 143 (146) (158) (204) (147) Net Income per limited partnership unit............................... 648.45 430.65 707.85 725.00 (782.10) (1,009.80) (727.65) Distributions per limited partnership unit............................... 1,143.45 495.00 495.00 -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)........................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents............ $ 557 $ 443 $ 459 $ 319 $ 201 $ 199 $ 289 Real Estate, Net of Accumulated Depreciation....................... 4,811 5,051 4,994 5,226 5,451 5,640 5,870 Total Assets......................... 5,746 5,843 5,804 5,849 6,031 5,852 6,176 Notes Payable........................ 6,193 6,256 6,240 6,299 6,354 6,068 6,143 General Partners' Capital/(Deficit).... (8) (7) (7) (7) (6) (4) (2) Limited Partners' Capital/(Deficit).... (720) (677) (621) (664) (519) (363) (161) Partners' Deficit...................... (728) (684) (628) (671) (525) (367) (163) Total Distributions.................... 231 100 100 -- -- -- -- Book value per limited partnership unit................................. 3,600.00 3,385.00 3,105.00 3,320.00 2,595.00 1,815.00 805.00 Net increase (decrease) in cash and cash equivalents..................... 98 124 140 118 2 (90) 109 Net cash provided by operating activities........................... 460 358 423 181 121 68 191 Ratio of earnings to fixed charges..... 1.33/1 1.22/1 1.27/1 0.73/1 0.73/1 0.68/1 0.88/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
COASTAL AIMCO COMMONS OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $731.25 $1,113.75 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $905.00 $1,113.75
S-20 1514 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 1515 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $9,200,000 less approximately $472,263 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 1516 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 1517 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2014 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 1518 is equivalent to distributions of $905 per year on the number of Preferred OP Units, or distributions of $731.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $1,113.75 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 1519 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 1520 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.830% interest, consisting of a 0% limited partnership interest and a 0.830% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 1521 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 1522 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $87,000 for the nine months ended September 30, 1997, to $131,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on October 2019. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a vote of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If S-29 1523 the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $1,113.75 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $905 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 1524 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,113.75 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $731.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 1525 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.10% per annum, which resulted in an increase from the initial capitalization rate of 0.50%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.32%, resulting in a final capitalization rate of 10.18%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $937,000 10.18% $9,200,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $1,743,836, less total expenses of $652,251 and recurring replacement costs of $472,263. S-32 1526 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,285,277. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 937,000 Capitalization rate......................................... 10.18% ----------- Gross valuation of partnership's properties(1).............. $ 9,200,000 Plus: Cash and cash equivalents............................. 226,675 Plus: Other partnership assets, net of security deposits.... 191,835 Less: Mortgage debt, including accrued interest............. (6,283,500) Less: Accounts payable and accrued expenses................. (21,568) Less: Other liabilities..................................... (49,902) ----------- Partnership valuation before taxes and certain costs........ 3,263,540 Less: Disposition fees...................................... (276,000) Less: Extraordinary capital expenditures and deferred maintenance............................................... (472,263) Less: Closing costs......................................... (230,000) ----------- Estimates net valuation of your partnership................. 2,285,277 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 2,262,424 Total number of units............................. 200.0 Estimated valuation per unit................................ 11,312 =========== Cash consideration per unit................................. $ 11,312 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $11,312 by the $25 liquidation preference of each Preferred OP Unit to get 452.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $11,312 by a price of $38.69 to get 292.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,285,277 or .40% is the net valuation of your partnership. S-33 1527 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $87,000 for the nine months ended September 30, 1997 to $131,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 1528 11. The estimated unit value of $11,312, based on a total estimated value of your partnership's property of $9,200,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $905 per year on the number of Preferred OP Units, or distributions of $731.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $1,113.75. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 1529 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 1530 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2014, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $11,312 Partnership preferred units................................. $11,312(1) Partnership common units.................................... $11,312(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $11,312 Estimated going concern value............................. $11,174 Net book value(deficit)................................... $(8,925)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 1531 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $11,174 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $8,925 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $11,691 per unit, going concern value of $9,822 per unit and liquidation value of $10,497 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account S-38 1532 (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $379, $(1,490) and $(815). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and S-39 1533 analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $1,822,808 Operating Expenses.......................................... (839,247) Replacement Reserves -- Net................................. (59,425) Debt Service................................................ (565,605) Capital Expenditures........................................ (34,300) ---------- Net Cash Flow..................................... $ 324,231 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance S-40 1534 with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.18%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $472,263. Stanger observed that your S-41 1535 partnership liquidation value of $2,285,277 was allocated 99% to the limited partners and divided by the total units outstanding of 200 to provide the liquidation value per unit of $11,312. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $937,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $16,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.58%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.75%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 200 to achieve management's estimate of going concern value of $11,174 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $11,312 per unit is equal to management's estimate of liquidation value, and reflects a 1.2% premium to management's estimate of going concern value of $11,174. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible, for the days prior to the effective date of the offer. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net S-42 1536 asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.75% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998, adjusted for a $725,000 cash distribution, which we advised Stanger would be made after September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $11,691, $9,822 and $10,497 representing premiums (discounts) to the offer price of 3.3%, (13.1)% and (7.2)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the S-43 1537 partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 1538 YOUR PARTNERSHIP GENERAL Coastal Commons Limited Partnership, is a South Carolina limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in December 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 229 limited partners of your partnership and a total of 200 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 29, 1984 for the purpose of owning an apartment property located in Mt. Pleasant, South Carolina, known as "Hibben Ferry Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1984 and consists of 240 apartment units. There are 48 one-bedroom apartments and 192 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 94.58% in 1998, 92.92% in 1997 and 92.92% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $443,463 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, gutters and downspouts, hot water, siding & trim, exterior paint, drives and parking lot, landscaping and irrigation, drainage, and life support systems. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ----- ---- ---- ---- ---- $577 $534 $506 $514 $525
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $122,666 of $471,430 of assessed valuation with a current yearly tax rate of 26.02%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 26.54% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2014 unless earlier dissolved. Your S-45 1539 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 95% and $602, respectively, at December 31, 1998, compared to 93% and $577, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because of its location and pending improvements. In addition, the general partner noted that it expects to spend approximately $472,263 for capital improvements at the property in 1999 to repair and improve the property's roofing, down spouts, hot water heaters, siding, exterior paint, parking lot, irrigation and life support systems. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $6,177,044, payable to First Union National Bank, which bears interest at a rate of 8.08%. The mortgage debt is due on July 2002. Your S-46 1540 partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $15,300,000 of limited partnership units in 1984 for $22,200 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2014, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and its affiliates are not liable to your partnership or any limited partner for any acts performed or any failure to act by any of them performed or omitted in good faith, provided that such course of conduct did not constitute fraud, gross negligence or willful misconduct. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership against any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct. Moreover, the general partners are not liable to your partnership of the limited partners because any taxing authorities disallowed or adjusted any deductions or credits in your partnership income tax returns. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 1541 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $22,200.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 0 0 0 1994................................... 0 0 0 0 1995................................... 0 0 0 0 1996................................... 0 0 0 0 1997................................... 500 1,000 0 24,750 1998................................... 1,125 2,250 0 55,688 ------ ----- -- ------ Total........................ $1,625 3,250 0 80,438 ====== ===== == ======
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.0% 0 1995......................... 0 0.0% 0 1996......................... 0 0.0% 0 1997......................... 1 .5% 1 1998......................... 0 0.0% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.830% interest in your partnership, including no units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 1542 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $13,020 1995........................................................ 18,245 1996........................................................ 16,000 1997........................................................ 16,000 1998........................................................ 12,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $77,155 1995........................................................ 77,155 1996........................................................ 82,000 1997........................................................ 87,000 1998........................................................ 92,212
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 1543 SELECTED FINANCIAL INFORMATION OF COASTAL COMMONS LIMITED PARTNERSHIP Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Coastal Commons Limited Partnership taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
COASTAL COMMONS ------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------ --------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (in thousands, except per unit data) Cash and Cash Equivalents...................... $ 557 $ 443 $ 459 $ 319 $ 201 $ 199 $ 289 Land & Building................................ 9,375 9,319 9,332 9,268 9,205 9,116 9,074 Accumulated Depreciation....................... (4,564) (4,268) (4,338) (4,042) (3,754) (3,476) (3,204) Other Assets................................... 378 349 351 304 379 13 17 ------- ------- ------- ------- ------- ------- ------- Total Assets........................... $ 5,746 $ 5,843 $ 5,804 $ 5,849 $ 6,031 $ 5,852 $ 6,176 ======= ======= ======= ======= ======= ======= ======= Notes Payable.................................. $ 6,193 $ 6,256 $ 6,240 $ 6,299 $ 6,354 $ 6,068 $ 6,143 Other Liabilities.............................. 281 271 192 221 202 151 196 ------- ------- ------- ------- ------- ------- ------- Total Liabilities...................... $ 6,474 $ 6,527 $ 6,432 $ 6,520 $ 6,556 $ 6,219 $ 6,339 ------- ------- ------- ------- ------- ------- ------- Partners Deficit....................... $ (728) $ (684) $ (628) $ (671) $ (525) $ (367) $ (163) ======= ======= ======= ======= ======= ======= =======
COASTAL COMMONS --------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ----------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- ------- ------- -------- -------- ---------- -------- (in thousands, except per unit data) Rental Revenue............................. $ 1,271 $ 1,227 $ 1,663 $ 1,539 $ 1,457 $ 1,481 $ 1,512 Other Income............................... 92 100 124 169 123 85 167 --------- ------- ------- -------- -------- ---------- -------- Total Revenue...................... $ 1,363 $ 1,327 $ 1,787 $ 1,708 $ 1,580 $ 1,566 $ 1,679 --------- ------- ------- -------- -------- ---------- -------- Operating Expenses......................... $ 480 $ 499 $ 648 $ 859 $ 689 $ 648 $ 656 General & Administrative................... 35 20 48 51 74 88 102 Depreciation............................... 226 226 296 288 279 272 267 Interest Expense........................... 397 401 534 538 578 634 641 Property Taxes............................. 94 94 118 118 118 128 89 --------- ------- ------- -------- -------- ---------- -------- Total Expenses..................... $ 1,232 $ 1,240 $ 1,644 $ 1,854 $ 1,738 $ 1,770 $ 1,755 --------- ------- ------- -------- -------- ---------- -------- Net Income before extraordinary items...... $ 131 $ 87 $ 143 $ (146) $ (158) $ (204) $ (76) Extraordinary Items........................ -- -- -- -- -- -- (71) --------- ------- ------- -------- -------- ---------- -------- Net Income (Loss).......................... $ 131 $ 87 $ 143 $ (146) $ (158) $ (204) $ (147) ========= ======= ======= ======== ======== ========== ======== Net Income per limited partnership unit.... $ 648.45 $430.65 $707.85 $(725.00) $(782.10) $(1,009.80) $(727.65) ========= ======= ======= ======== ======== ========== ======== Distributions per limited partnership unit..................................... $1,143.45 $495.00 $495.00 $ -- $ -- $ -- $ -- ========= ======= ======= ======== ======== ========== ========
S-50 1544 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $131,000 for the nine months ended September 30, 1998, compared to $87,000 for the nine months ended September 30, 1997. The increase in net income of $44,000 was primarily the result of an increase in revenues, coupled with a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,363,000 for the nine months ended September 30, 1998, compared to $1,327,000 for the nine months ended September 30, 1997, an increase of $36,000, or 2.7%. The Partnership increased rental rates by an average of 3.9%, while occupancy remained constant at 92%. However, bad debt expense increased $21,000. The decrease in Other Income of $8,000 was due to lower corporate units and lease cancellation fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $480,000 for the nine months ended September 30, 1998, compared to $499,000 for the nine months ended September 30, 1997, a decrease of $19,000, or 3.8%. The decrease is due to lower property insurance and maintenance expenses. The Partnership repaired its gutters during 1997, with no such project for the corresponding period in 1998. Partnership Property management expenses totaled $68,000 for the nine months ended September 30, 1998, compared to $65,000 for the nine months ended September 30, 1997, an increase of $3,000. This increase was the result of the increase in rental revenues, as management fees are calculated based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $15,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher partnership administrative expenses and asset management fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $397,000 for the nine months ended September 30, 1998, compared to $401,000 for the nine months ended September 30, 1997, a decrease of $4,000, or 1%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. S-51 1545 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $143,000 for the year ended December 31, 1997, compared to a net loss of $146,000 for the year ended December 31, 1996. The increase in net income of $289,000 was primarily the result of an increase in revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,787,000 for the year ended December 31, 1997, compared to $1,708,000 for the year ended December 31, 1996, an increase of $79,000, or 4.6%. This increase is due to an increase in rental rates by an average of 8%. Partially off-setting the increase in rental revenues was a decrease in other income due to lower revenues for corporate units. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $648,000 for the year ended December 31, 1997, compared to $859,000 for the year ended December 31, 1996, a decrease of $211,000 or 25%. The decrease is primarily due to lower maintenance costs as the property incurred gutter repairs and exterior painting expenses during 1996, with no similar projects during 1997. Management expenses totaled $87,000 for the year ended December 31, 1997, compared to $82,000 for the year ended December 31, 1996, an increase of $5,000, or 6%, which corresponds to the increase in rental revenues. DEPRECIATION EXPENSE Depreciation expense increased $8,000 to $296,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $534,000 for the year ended December 31, 1997, compared to $538,000 for the year ended December 31, 1996, a decrease of $4,000, or 0.7%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $146,000 for the year ended December 31, 1996, compared to a net loss of $158,000 for the year ended December 31, 1995. The decrease in net loss of $12,000 was primarily the result of an increase in revenues, off-set by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,708,000 for the year ended December 31, 1996, compared to $1,580,000 for the year ended December 31, 1995, an increase of $128,000, or 8%. This increase is due primarily to a 6% increase in rental rates, as occupancy remained stable at 93%. In addition, the Partnership experienced an increase in other income due to higher revenues for corporate units. S-52 1546 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $859,000 for the year ended December 31, 1996, compared to $689,000 for the year ended December 31, 1995, an increase of $170,000 or 25%. This increase is primarily due to higher maintenance costs as the property incurred gutter repairs and exterior painting expenses during 1996, with no similar projects during 1995. Management expenses totaled $82,000 for the year ended December 31, 1996, compared to $77,000 for the year ended December 31, 1995, an increase of $5,000 or 6%, which corresponds to the increase in rental revenues. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses decreased $23,000 to $51,000 due primarily to lower legal and professional costs for 1996. DEPRECIATION EXPENSE Depreciation expense increased $9,000 to $288,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $538,000 for the year ended December 31, 1996, compared to $578,000 for the year ended December 31, 1995, a decrease of $40,000. The decrease is due to a lower rate on the partnership indebtedness that was refinanced in June 1995, resulting in lower expense for all of 1996, compared to only six months for the lower expense in 1995. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your partnership had $557,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $6,193,000. The mortgage requires monthly payments of approximately $47,000 until July, 2002, at which time a balloon payment of approximately $5,909,000 will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 8.08% There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 1547 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 200 units of your partnership (up to 50 units) for consideration per unit of (i) 452.50 Preferred OP Units, (ii) 292.50 Common OP Units, or (iii) $11,312 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 1548 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 1549 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 1550 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 1551 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 1552 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 1553 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 1554 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 1555 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 1556 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 1557 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 1558 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 1559 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 1560 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 1561 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 1562 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 1563 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 1564 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2014. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating operate, lease and manage your partnership's Partnership is to conduct any business that property. Subject to restrictions contained may be lawfully conducted by a limited in your partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all act necessary, advisable or convenient nership Act (as amended from time to time, to the business of your partnership in- or any successor to such statute) (the cluding borrowing money and creating liens. "Delaware Limited Partnership Act"), provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 1565 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 200 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, the general partners contribute funds or other assets to its may not enter into contracts with themselves subsidiaries or other persons in which it or their affiliates, except has an equity investment,
S-72 1566 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP for the agreement specified in your and such persons may borrow funds from the partnership's agreement of limited AIMCO Operating Partnership, on terms and partnership in connection with the conditions established in the sole and acquisition, operation, management and absolute discretion of the general partner. ownership of your partnership's property. To the extent consistent with the business Your partnership may not make loans to any purpose of the AIMCO Operating Partnership of the general partners but the general and the permitted activities of the general partners may make loans to your partnership partner, the AIMCO Operating Partnership may in such amounts as the general partners deem transfer assets to joint ventures, limited necessary for the payment of any partnership liability companies, partnerships, obligations and expenses; provided that the corporations, business trusts or other interest is 1% over the then prevailing business entities in which it is or thereby prime rate of The Citizens and Southern becomes a participant upon such terms and National Bank of South Carolina for subject to such conditions consistent with short-term, unsecured loans (but not in any the AIMCO Operating Partnership Agreement case higher than the legal rate) and the and applicable law as the general partner, general partners first make a reasonable in its sole and absolute discretion, effort to obtain loans at the most favorable believes to be advisable. Except as rate from unaffiliated parties. expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in such amounts contains no restrictions on borrowings, and as the general partner deems, in its the general partner has full power and reasonable discretion, to be in the best authority to borrow money on behalf of the interests of your partnership, on the credit AIMCO Operating Partnership. The AIMCO of and enter into obligations, recourse and Operating Partnership has credit agreements nonrecourse, on behalf of your partnership that restrict, among other things, its and to give as security therefor any of your ability to incur indebtedness. partnership's property. However, a refinancing of your partnership's property must be approved by the general partner.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner or written demand with a statement of the its duly authorized representative to purpose of such demand and at such OP receive by mail, upon written request to Unitholder's own expense, to obtain a your partnership and at such limited part- current list of the name and last known ner's sole cost and expense, a list of names business, residence or mailing address of and addresses of the limited partners. the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and the responsibility to direct the management affairs of the AIMCO Operating Partnership of your partnership's business and assets are vested in AIMCO-GP, Inc., which is the and has all rights and powers generally general partner. No OP Unitholder has any conferred by law or which are necessary, right to participate in or exercise control advisable or consistent in connection or management power over the business and therewith. The general partner of your affairs of the AIMCO Operating Partner- partnership
S-73 1567 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP has the power and authority to execute ship. The OP Unitholders have the right to documents and instruments in its sole name vote on certain matters described under on behalf of your partnership. No limited "Comparison of Your Units and AIMCO OP partner may take part in or interfere in any Units -- Voting Rights" below. The general manner with the conduct or control of the partner may not be removed by the OP business of your partnership. Limited Unitholders with or without cause. partners have no right or authority to act for or bind the corporation. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable to your partnership or any limited to the AIMCO Operating Partnership for partner for any acts performed or any losses sustained, liabilities incurred or failure to act by any of them performed or benefits not derived as a result of errors omitted in good faith, provided that such in judgment or mistakes of fact or law of course of conduct did not constitute fraud, any act or omission if the general partner gross negligence or willful misconduct. In acted in good faith. The AIMCO Operating addition, the general partner and its Partnership Agreement provides for affiliates are entitled to indemnification indemnification of AIMCO, or any director or by your partnership against any loss or officer of AIMCO (in its capacity as the damage resulting from any act or omission previous general partner of the AIMCO performed or omitted in good faith, which Operating Partnership), the general partner, does not constitute fraud, gross negligence any officer or director of general partner or willful misconduct. Moreover, the general or the AIMCO Operating Partnership and such partner is not liable to your partnership or other persons as the general partner may the limited partners because any taxing designate from and against all losses, authorities disallowed or adjusted any claims, damages, liabilities, joint or deductions or credits in your partnership several, expenses (including legal fees), income tax returns. fines, settlements and other
S-74 1568 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner and elect a the business and affairs of the AIMCO successor general partner upon a vote of the Operating Partnership. The general partner limited partners owning a majority of the may not be removed as general partner of the outstanding units. The general partner may AIMCO Operating Partnership by the OP resign at any time; provided, however that Unitholders with or without cause. Under the such resignation does not cause the default AIMCO Operating Partnership Agreement, the under or result in the acceleration of the general partner may, in its sole discretion, payment of any loan secured by your prevent a transferee of an OP Unit from partnership's property. A limited partner becoming a substituted limited partner may not transfer his interests without the pursuant to the AIMCO Operating Partnership consent of the general partner which may be Agreement. The general partner may exercise withheld at the sole discretion of the this right of approval to deter, delay or general partner. hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to comply with applicable laws, make Agreement, whereby the general partner may, changes of a ministerial nature which do not without the consent of the OP Unitholders, materially and adversely affect the rights amend the AIMCO Operating Partnership of the limited partners and admit substi- Agreement, amendments to the AIMCO Operating tute or additional limited partners. Any Partnership Agreement require the consent of other amendments must be approved by the the holders of a majority of the outstanding limited partners owning more than 50% of the Common OP Units, excluding AIMCO and certain units and the general partner. Limited other limited exclusions (a "Majority in partners owning at least
S-75 1569 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 20% of the units have the power to propose Interest"). Amendments to the AIMCO amendments to your partnership's agreement Operating Partnership Agreement may be of limited partnership. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives 1/4 of 1% of gross operating its capacity as general partner of the AIMCO revenues of your partnership's property, Operating Partnership. In addition, the payable monthly. Moreover, the general AIMCO Operating Partnership is responsible partner or certain affiliates may be enti- for all expenses incurred relating to the tled to compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, a limited partner, gross negligence, no OP Unitholder has unless it is deemed to be taking part in the personal liability for the AIMCO Operating control of the business, is not bound by or Partnership's debts and obligations, and personally liable for the expenses, liabil- liability of the OP Unitholders for the ities or obligations of your partnership. A AIMCO Operating Partnership's debts and limited partner's liability is limited obligations is generally limited to the solely to the amount of its capital amount of their investment in the AIMCO contribution to your partnership, together Operating Partnership. However, the with the undistributed share of the profits limitations on the liability of limited of your partnership from time to time partners for the obligations of a limited credited to its capital account and any partnership have not been clearly money or other property wrongfully paid or established in some states. If it were conveyed to him on account of his determined that the AIMCO Operating Part- contribution. nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-76 1570 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner has relevant partnership agreement, Delaware law an overriding fiduciary obligation to your generally requires a general partner of a partnership. The general partner is not Delaware limited partnership to adhere to required to devote all of its time or fiduciary duty standards under which it owes business efforts to the affairs of your its limited partners the highest duties of partnership, but shall devote so much of its good faith, fairness and loyalty and which time and attention to your partnership as is generally prohibit such general partner from necessary and advisable to successfully taking any action or engaging in any manage the affairs of your partnership. In transaction as to which it has a conflict of addition, any partner or affiliate may interest. The AIMCO Operating Partnership engage in or possess an interest in other Agreement expressly authorizes the general business ventures of every nature and partner to enter into, on behalf of the description, whether such ventures are AIMCO Operating Partnership, a right of competitive with your partnership or first opportunity arrangement and other otherwise, which may be located in the conflict avoidance agreements with various market area or vicinity of your affiliates of the AIMCO Operating partnership's property and neither your Partnership and the general partner, on such partnership nor the partners shall have any terms as the general partner, in its sole right in or to such independent ventures or and absolute discretion, believes are to the income or profits derived therefrom. advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of In general, your partnership's agreement of the general partner by providing that the limited partnership and the AIMCO Operating general partner, and its officers and Partnership Agreement have limitations on directors will not be liable or accountable the liability of the general partner but in damages to the AIMCO Operating such limitations differ and provide more Partnership, the limited partners or as- protection for the general partner of the signees for errors in judgment or mistakes AIMCO Operating Partnership. of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-77 1571 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital
S-78 1572 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units and the have the same voting rights as certain amendments and approval of the general as holders of the Common OP termination of the AIMCO partner, the limited Units. See "Description of Operating Partnership partners may amend your OP Units" in the accompany- Agreement and certain partnership's agreement of ing Prospectus. So long as transactions such as the limited partnership, any Preferred OP Units are institution of bankruptcy terminate your partnership outstanding, in addition to proceedings, an assignment and approve or disapprove any other vote or consent of for the benefit of creditors the sale of all or partners required by law or and certain transfers by the substantially all of the by the AIMCO Operating general partner of its assets of your partnership. Partnership Agreement, the interest in the AIMCO The removal of the general affirmative vote or consent Operating Partnership or the partner and the election a of holders of at least 50% admission of a successor trustee to liquidate and of the outstanding Preferred general partner. distribute your OP Units will be necessary partnership's assets upon a for effecting any amendment Under the AIMCO Operating dissolution caused by the of any of the provisions of Partnership Agreement, the retirement of the general the Partnership Unit general partner has the partner both require the Designation of the Preferred power to effect the vote of a majority of the OP Units that materially and acquisition, sale, transfer, outstanding units. The adversely affects the rights exchange or other affirmative vote of all or preferences of the disposition of any assets of limited partners and the holders of the Preferred OP the AIMCO Operating approval of the general Units. The creation or Partnership (including, but partner is required to elect issuance of any class or not limited to, the exercise a substitute general series of partnership units, or grant of any conversion, partner. including, without option, privilege or limitation, any partner- subscription right or any The general partner may ship units that may have other right available in cause the dissolution of the rights senior or superior to connection with any assets your partnership by the Preferred OP Units, at any time held by the retiring. Your partnership shall not be deemed to AIMCO Operating Partnership) may be continued by the materially adversely affect or the merger, remaining general partner the rights or preferences of consolidation, or, if none, all of the the holders of Preferred OP reorganization or other limited partners may agree Units. With respect to the combination of the AIMCO to continue your part- exercise of the above Operating Partnership with nership and elect a described voting rights, or into another entity, all successor to the general each Preferred OP Units without the consent of the partner. shall have one (1) vote per OP Unitholders. Preferred OP Unit. In general, you have greater The general partner may voting rights in your cause the dissolution of the partnership than you will AIMCO Operating Partnership have as an OP Unitholder. OP by an "event of withdrawal," Unitholders cannot remove as defined in the Delaware the general partner of the Limited Partnership Act AIMCO Operating Partnership. (including, without limi- tation, bankruptcy), unless,
S-79 1573 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash from at the rate of $0.50 per or such portion as the Operation as defined in your Preferred OP Unit; provided, general partner may in its partnership's agreement of however, that at any time sole and absolute discretion limited partnership are made and from time to time on or determine, of Available Cash not less often than after the fifth anniversary (as defined in the AIMCO semi-annually. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing pro- Preferred OP Units to the limited partner and the ceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your annual interest rate then on the record date es- partnership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the Such distributions will be
S-80 1574 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cumulative from the date of future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner are not listed Agreement re-
S-81 1575 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS by such person if: (1) the on any securities exchange. stricts the transferability transfer complies with the The Preferred OP Units are of the OP Units. Until the then-applicable rules and subject to restrictions on expiration of one year from regulations of any gov- transfer as set forth in the the date on which an OP ernmental authority with AIMCO Operating Partnership Unitholder acquired OP jurisdiction over the Agreement. Units, subject to certain disposition, (2) except in exceptions, such OP specified circumstances, the Pursuant to the AIMCO Unitholder may not transfer interest transferred is not Operating Partnership all or any portion of its OP less than 1 unit, (3) a Agreement, until the Units to any transferee written assignment has been expiration of one year from without the consent of the duly executed and the date on which a holder general partner, which acknowledged by the assignor of Preferred OP Units consent may be withheld in and assignee, (4) the ap- acquired Preferred OP Units, its sole and absolute proval of the general subject to certain discretion. After the partner which may be exceptions, such holder of expiration of one year, such withheld in the sole and Preferred OP Units may not OP Unitholder has the right absolute discretion of the transfer all or any portion to transfer all or any general partner has been of its Preferred OP Units to portion of its OP Units to granted and (5) the assignor any transferee without the any person, subject to the and assignee have complied consent of the general satisfaction of certain con- with such other conditions partner, which consent may ditions specified in the as set forth in your be withheld in its sole and AIMCO Operating Partnership partnership's agreement of absolute discretion. After Agreement, including the limited partnership. the expiration of one year, general partner's right of such holders of Preferred OP first refusal. See There are no redemption Units has the right to "Description of OP Units -- rights associated with your transfer all or any portion Transfers and Withdrawals" units. of its Preferred OP Units to in the accompanying any person, subject to the Prospectus. satisfaction of certain conditions specified in the After the first anniversary AIMCO Operating Partner- of becoming a holder of ship Agreement, including Common OP Units, an OP the general partner's right Unitholder has the right, of first refusal. subject to the terms and conditions of the AIMCO After a one-year holding Operating Partnership period, a holder may redeem Agreement, to require the Preferred OP Units and AIMCO Operating Partnership receive in exchange to redeem all or a portion therefor, at the AIMCO Oper- of the Common OP Units held ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to acquire some or all of the ten-
S-82 1576 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 1577 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 1578 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 1579 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 1580 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 1581 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 1582 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 1583 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 1584 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 1585 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 1586 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $16,000 in 1996, $16,000 in 1997 and $12,000 in 1998. The property manager received management fees of $82,000 in 1996, $87,000, in 1997 and $99,212 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 1587 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $565,600 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 1588 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Coastal Commons Limited Partnership at December 31, 1997, and for the year then ended, as set forth in their report. We've included the consolidated financial statements of Coastal Commons Limited Partnership in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-95 1589 COASTAL COMMONS LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Consolidated Balance Sheet as of September 30, 1998 (Unaudited).......................................... F-2 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)...... F-3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)...... F-4 Note A -- Basis of Presentation (Unaudited)................. F-4 Report of Independent Auditors.............................. F-5 Consolidated Balance Sheet as of December 31, 1997.......... F-6 Consolidated Statement of Operations for the year ended December 31, 1997......................................... F-7 Consolidated Statement of Changes in Partners' Deficit for the year ended December 31, 1997.......................... F-8 Consolidated Statement of Cash Flows for the year ended December 31, 1997......................................... F-9 Notes to Consolidated Financial Statements.................. F-10 Consolidated Balance Sheet as of December 31, 1996 (Unaudited)............................................... F-15 Consolidated Statement of Operations for the year ended December 31, 1996 (Unaudited)............................. F-16 Consolidated Statement of Partners' Deficit for the year ended December 31, 1996 (Unaudited)....................... F-17 Consolidated Statement of Cash Flows for the year ended December 31, 1996 (Unaudited)............................. F-18 Notes to Consolidated Financial Statements (Unaudited)...... F-19
F-1 1590 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEET -- (UNAUDITED) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 557,000 Receivables and deposits.................................... 66,000 Restricted escrows.......................................... 201,000 Other assets................................................ 111,000 Investment property Land...................................................... $ 684,000 Building and related personal property.................... 8,691,000 ----------- 9,375,000 Less: Accumulated depreciation............................ (4,564,000) 4,811,000 ----------- ---------- Total assets...................................... $5,746,000 ========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable and accrued liabilities.................... $ 212,000 Tenant security deposits.................................... 51,000 Mortgage note payable....................................... 6,193,000 Minority interest........................................... 18,000 Partners' deficit........................................... (728,000) ---------- Total Liabilities and Partners' Deficit........... $5,746,000 ---------- ----------
See accompanying note. F-2 1591 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,271,000 $1,227,000 Other Income.............................................. 92,000 100,000 ---------- ---------- Total Revenues.................................... 1,363,000 1,327,000 Expenses: Operating Expenses........................................ 480,000 499,000 General and Administrative Expenses....................... 35,000 20,000 Depreciation Expense...................................... 226,000 226,000 Interest Expense.......................................... 397,000 401,000 Property Tax Expense...................................... 94,000 94,000 ---------- ---------- Total Expenses.................................... 1,232,000 1,240,000 Net Income........................................ $ 131,000 $ 87,000 ========== ==========
See accompanying note. F-3 1592 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- Operating Activities: Net income................................................ $ 131,000 $ 87,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization.......................... 246,000 246,000 Changes in accounts: Receivables and deposits and other assets............ (6,000) (25,000) Accounts payable and accrued expenses................ 89,000 50,000 --------- --------- Net cash provided by (used in) operating activities...................................... 460,000 358,000 --------- --------- Investing Activities: Property improvements and replacements.................... (43,000) (51,000) Net (increase)/decrease in restricted escrows............. (41,000) (40,000) --------- --------- Net cash provided by (used in) investing activities...................................... (84,000) (91,000) Financing Activities: Payments on mortgage...................................... (47,000) (43,000) Partners' Distributions................................... (231,000) (100,000) --------- --------- Net cash provided by (used in) financing activities...................................... (278,000) (143,000) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 98,000 124,000 Cash and cash equivalents at beginning of year............ 459,000 319,000 --------- --------- Cash and cash equivalents at end of period................ $ 557,000 $ 443,000 ========= =========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Coastal Commons Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 1593 REPORT OF INDEPENDENT AUDITORS The Partners Coastal Commons Limited Partnership We have audited the accompanying consolidated balance sheet of Coastal Commons Limited Partnership as of December 31, 1997 and the related consolidated statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coastal Commons Limited Partnership at December 31, 1997 and the consolidated results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-5 1594 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 459 Receivables and deposits.................................... 57 Restricted escrows.......................................... 160 Loan costs, net of $65 amortization......................... 125 Other assets................................................ 9 Investment property, at cost (Notes B and D): Land...................................................... $ 684 Buildings and related personal property................... 8,648 ------- 9,332 Less accumulated depreciation............................. (4,338) 4,994 ------- ------ $5,804 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 23 Security deposits and other tenant liabilities............ 41 Other liabilities......................................... 110 Mortgage note payable (Note B)............................ 6,240 ------ 6,414 Minority interest (Note A).................................. 18 Partners' deficit: General partners.......................................... $ (7) Limited partners (200 units issued and outstanding)....... (621) (628) ------- ------ $5,804 ======
See accompanying notes. F-6 1595 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,663 Other income.............................................. 124 ------- 1,787 Expenses: Operating................................................. $648 General and administrative................................ 48 Depreciation.............................................. 296 Interest.................................................. 534 Property taxes............................................ 118 1,644 ---- ------- Net income.................................................. $ 143 ======= Net income allocated to general partners (1%)............... $ 1 Net income allocated to limited partners (99%).............. 142 ------- $ 143 ======= Net income per limited partnership unit..................... $707.85 =======
See accompanying notes. F-7 1596 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- Deficit at December 31, 1996................................ $(7) $(664) $(671) Net income.................................................. 1 142 143 Distributions to partners................................... (1) (99) (100) --- ----- ----- Deficit at December 31, 1997................................ $(7) $(621) $(628) === ===== =====
See accompanying notes. F-8 1597 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 143 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 296 Amortization of loan costs and mortgage discount....... 29 Change in accounts: Receivables and deposits............................. (7) Other assets......................................... (9) Accounts payable..................................... (55) Tenant security deposit liabilities.................. 5 Other liabilities.................................... 21 ----- Net cash provided by operating activities................. 423 Cash flows from investing activities Property improvements and replacements.................... (64) Deposits to restricted escrows............................ (60) ----- Net cash used in investing activities..................... (124) Cash flows from financing activities Principal payments on mortgage notes payable.............. (59) Distributions to partners................................. (100) ----- Net cash used in financing activities..................... (159) ----- Net increase in cash and cash equivalents................. 140 Cash and cash equivalents at December 31, 1996............ 319 ----- Cash and cash equivalents at December 31, 1997............ $ 459 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 507 =====
See accompanying notes. F-9 1598 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. Two hundred units of limited partnership interests, an individual general partner interest and two corporate general partner interests were issued. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership's 79%-owned subsidiary Hibben Ferry Recreation Center, which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. All significant intercompany accounts have been eliminated in consolidation. Minority interest represents the 21% non-affiliated ownership interest in Hibben Ferry Recreation Center. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. F-10 1599 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrows A Replacement Reserve was established at the time of the refinancing of the mortgage note payable encumbering the apartment property to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,000 to the reserve. At December 31, 1997, the account balance was approximately $125,000. There is also approximately $35,000 in replacement reserves for the Hibben Ferry Recreation Center. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note of approximately $6,240,000 bears interest at 8.08% and is payable in monthly principal and interest installments of approximately $47,000 with a balloon payment of approximately $5,909,000 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-11 1600 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the mortgage note payable subsequent to December 31, are as follows (in thousands): 1998....................................................... $ 64 1999....................................................... 69 2000....................................................... 75 2001....................................................... 81 2002....................................................... 5,951 ------ $6,240 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $87 General partner expenses.................................... 12 Asset management fees....................................... 4
For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Hibben Ferry Apartments Mount Pleasant, South Carolina................. $6,240 $684 $8,027 $490 Hibben Ferry Recreation.......................... -- -- 121 10 ------ ---- ------ ---- Totals........................................... $6,240 $684 $8,148 $500 ====== ==== ====== ====
F-12 1601 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS ----------- ---- ----------- ------ ------------ -------- ------------ Hibben Ferry Apartments.................... $684 $8,517 $9,201 $4,277 1984 5-30 Hibben Ferry Recreation.................... -- 131 131 61 1984 5-30 ---- ------ ------ ------ Totals..................................... $684 $8,648 $9,332 $4,338 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $9,268 Property improvements..................................... 64 ------ Balance at end of year.................................... $9,332 ====== Accumulated Depreciation Balance at beginning of year.............................. $4,042 Additions charged to expense.............................. 296 ------ Balance at end of year.................................... $4,338 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $9,241,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $7,044,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 143 Add (deduct): Depreciation differences.................................. (54) Rental Income............................................. 21 Other..................................................... 3 ------- Net income -- Federal income tax basis...................... $ 113 ------- Federal taxable income per limited partnership unit......... $559.35 =======
F-13 1602 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (628) Investment property......................................... (2,713) Syndication fees............................................ 1,605 Other....................................................... 47 ------- Net liabilities -- tax basis................................ $(1,689) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 1603 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 319 Receivables and deposits.................................... 50 Restricted escrows.......................................... 100 Loan costs, net of $38 amortization......................... 154 Investment property, at cost (Notes B and D): Land...................................................... $ 684 Buildings and related personal property................... 8,584 ------- 9,268 Less accumulated depreciation............................. (4,042) 5,226 ------- ------ $5,849 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 78 Security deposits and other tenant liabilities............ 36 Other liabilities......................................... 89 Mortgage note payable (Note B)............................ 6,299 ------ 6,502 Minority interest (Note A).................................. 18 Partners' deficit: General partners.......................................... (7) Limited partners (200 units issued and outstanding)....... (664) (671) ------- ------ $5,849 ======
See accompanying notes. F-15 1604 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,539 Other income.............................................. 169 -------- 1,708 Expenses: Operating................................................. $859 General and administrative................................ 51 Depreciation.............................................. 288 Interest.................................................. 538 Property taxes............................................ 118 1,854 ---- -------- Net loss.................................................... (146) Net loss allocated to general partners (1%)................. (1) Net loss allocated to limited partners(99%)................. (145) -------- $ (146) ======== Net loss per limited partnership unit....................... $(725.00) ========
See accompanying notes. F-16 1605 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- Deficit at December 31, 1995................................ $(6) $(519) $(525) Net loss.................................................. (1) (145) (146) --- ----- ----- Deficit at December 31, 1996................................ $(7) $(664) $(671) === ===== =====
See accompanying notes F-17 1606 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................... $(146) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.............................................. 288 Amortization of loan costs................................ 27 Change in accounts Receivables and deposits and other assets.............. (7) Accounts payable and other liabilities................. 19 ----- Net cash provided by operating activities................... 181 CASH FLOWS FROM INVESTING ACTIVITIES Property improvements and replacements...................... (63) Net withdrawals from restricted escrows..................... 55 ----- Net cash used in investing activities....................... (8) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage notes payable................ (55) ----- Net cash used in financing activities....................... (55) ----- Net increase in cash and cash equivalents................... 118 Cash and cash equivalents at December 31, 1995.............. 201 ----- Cash and cash equivalents at December 31, 1996.............. $ 319 ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest...................................... $ 511 =====
See accompanying notes. F-18 1607 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. Two hundred units of limited partnership interests, an individual general partner interest and two corporate general partner interests were issued. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership's 79%-owned subsidiary Hibben Ferry Recreation Center, which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. All significant intercompany accounts have been eliminated in consolidation. Minority interest represents the 21% non-affiliated ownership interest in Hibben Ferry Recreation Center. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities, in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. F-19 1608 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrows A Replacement Reserve was established at the time of the refinancing of the mortgage note payable in 1995 to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,000 to the reserve. At December 31, 1996, the account balance was approximately $71,000. There is also approximately $29,000 in replacement reserves for the Hibben Ferry Recreation Center. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note of approximately $6,299,000 bears interest at 8.08% and is payable in monthly principal and interest installments of approximately $47,000 with a balloon payment of approximately $5,909,000 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-20 1609 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Scheduled principal payments of the mortgage note payable subsequent to December 31, 1996 are as follows (in thousands): 1997........................................................ $ 59 1998........................................................ 64 1999........................................................ 69 2000........................................................ 75 2001........................................................ 81 Thereafter.................................................. 5,951 ------ $6,299 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $82 General partner expenses.................................... 16
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ----------- ------------- Hibben Ferry Apartments.......................... $6,299 $684 $8,027 $426 Mount Pleasant, South Carolina Hibben Ferry Recreation.......................... 0 0 121 10 ------ ---- ------ ---- Totals................................. $6,299 $684 $8,148 $436 ====== ==== ====== ====
F-21 1610 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ----------- ------ ------------ -------- ----------- Hibben Ferry Apartments........... $684 $8,453 $9,137 $3,986 1984 5-30 Hibben Ferry Recreation........... 0 131 131 56 1984 5-30 ---- ------ ------ ------ Totals.................. $684 $8,584 $9,268 $4,042 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands). Investment Property Balance at beginning of year.............................. $9,205 Property improvements..................................... 63 ------ Balance at end of year.................................... $9,268 ====== Accumulated Depreciation Balance at beginning of year.............................. $3,754 Additions charged to expense.............................. 288 ------ Balance at end of year.................................... $4,042 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is $9,178,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is $6,699,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data): Net loss as reported........................................ $ (146) Add (deduct) Depreciation differences.................................. (64) Other..................................................... (9) ---------- Net loss -- Federal income tax basis........................ (219) ---------- Federal taxable loss per limited partnership unit........... $(1,084.05) ==========
F-22 1611 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (671) Accumulated depreciation.................................... (2,657) Syndication fees............................................ 1,605 Other....................................................... 21 ------- Net liabilities -- tax basis................................ $(1,702) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the Managing General Partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the Managing General Partner and the company that manages the Partnership. F-23 1612 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1613 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1614 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1615 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1616 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1617 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1618 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1619 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1620 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1621 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1622 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1623 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1624 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1625 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1626 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1627 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1628 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1629 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1630 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1631 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1632 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1633 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1634 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1635 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1636 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1637 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1638 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1639
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1640 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1641
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1642 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1643 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1644 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1645
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1646 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1647 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1648 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1649
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1650 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1651 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1652 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 1653 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 1654 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 1655 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 1656 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 1657 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 1658 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 1659 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 1660 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 1661 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 1662 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Coastal Commons L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Coastal Commons L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $11,312 in cash, or 292.50 Common OP Units of the Purchaser, of 452.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 1663 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. A-2 1664 We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 1665 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 1666
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 1667
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 1668
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 1669
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1670 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 1671 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Four Quarters Habitat Apartments Associates, Ltd. in exchange for your choice of: 603.75 of our 8.0% Class Two Partnership Preferred Units; 390.25 of our Partnership Common Units; or $15,090 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $15,090 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 1672 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Four Quarters Habitat Apartment Associates Ltd........................................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Lower Distributions............... S-25 Uncertain Terms of Preferred Stock......... S-25 Redemption Price of Preferred OP Units..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25
PAGE ----- Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58
i 1673
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-64 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78
PAGE ----- DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84 Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 Description of Class I Preferred Stock....... S-87 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1674 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through wholly owned subsidiaries, AIMCO-GP, Inc. ("AIMCO GP") acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, MAERIL, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $14,048,000, less approximately $730,932 of deferred maintenance and investment. It is possible, that the sale of the property could result in you receiving more per unit than in our offer. S-1 1675 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 1676 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2030 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $1,207.50 per year on the number of Preferred OP Units, or distributions of $975.63 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 1677 partnership's units. During 1998, your partnership paid no cash distributions per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 1678 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $10,300,252 of balloon payments due on its mortgage debt in October, 2001. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 1679 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2001 and require balloon payments of $10,300,252. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 1680 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,207.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $975.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 1681 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 1682 VALUATION OF UNITS We determined the offer consideration by estimating the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.80% per annum, which resulted in an increase from the initial capitalization rate of 1.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.87%, resulting in a final capitalization rate of 10.63%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 1,493,000 Capitalization rate......................................... 10.63% ------------ Gross valuation of partnership properties................... $ 14,048,000 Plus: Cash and cash equivalents............................. 145,164 Plus: Other partnership assets, net of security deposits.... 316,899 Less: Mortgage debt, including accrued interest............. (10,722,392) Less: Accounts payable and accrued expenses................. (125,302) Less: Other liabilities..................................... (574,650) ------------ Partnership valuation before taxes and certain costs........ 3,087,719 Less: Disposition fees...................................... 526,800 Less: Extraordinary capital expenditures for deferred maintenance............................................... (730,932) Less: Closing costs......................................... 351,200 ------------ Estimates net valuation of your partnership................. 1,478,787 Percentage of estimated net valuation allocated to holders of units.................................................. 100% ------------ Estimated net valuation of units............................ 1,478,787 Total number of units............................. 98.0 ------------ Estimated valuation per unit................................ $ 15,090 ============ Cash consideration per unit................................. $ 15,090 ============
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $15,090 by the $25 liquidation preference of each Preferred OP Unit to get 603.75 Preferred OP Units per unit. S-9 1683 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $15,090 by a price of $38.50 to get 390.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $38.69. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 15,090 Partnership Preferred Units................................. 15,090 Partnership Common Units.................................... 15,090 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 15,090 Estimated going concern value............................. $ 13,597 Alternative going concern value(1)........................ 11,344 Net book value (deficit).................................. $(62,098)
- --------------- (1) Assumes sale of properties when balloon payments are due instead of refinancing the mortgages. S-10 1684 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A a single apartment should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Four Quarters Habitat Apartment Associates, Ltd. is a Florida limited partnership which was formed on May 11, 1983 for the purpose of owning and operating a single apartment property located in Miami, Florida, known as "Four Quarters Habitat." Four Quarters Habitat consists of 336 apartment units. Your partnership has no employees. As of September 30, 1998, there were 100 units of limited partnership interest issued and outstanding, which were held of record by 98 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 8,550,080 limited partnership units in 1983. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2030, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $10,593,171, payable to LP Commercial Conduct Mfg. Trust, which bears interest at the rate of 9.84%. The mortgage debt is due on October, 2001. Your partnership also has a second mortgage note outstanding of 350,000, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 1685 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 603.75 of our Class Two Partnership Preferred Units; - 390.25 of our Partnership Common Units; or - $15,090 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 98 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 603.75 Preferred OP Units, 390.25 Common OP Units, or $15,090 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 1686 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 1687 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $15,090 in cash, 603.75 Preferred OP Units or 390.25 Common OP Units. Both your units and the OP Units S-14 1688 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $15,090. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $43,107 for the fiscal year ended December 31, 1998. The property manager received management fees of $118,437 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $369,705 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 1689 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 1690
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 1691 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 1692
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 1693 SUMMARY FINANCIAL INFORMATION OF FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES LTD. The summary financial information of Four Quarters Habitat Apartments Associates, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Four Quarters Habitat Apartments Associates, Ltd. for the years ended December 31, 1997 and, 1996 is based on unaudited financial statements. The December 31, 1995, 1994 and 1993 information is based on unaudited financial information which is not included in this Prospectus Supplement. This information should be read in conjunction with such unaudited financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- -------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Operating Data: Total Revenues.................. $ 2,177 $ 2,115 $ 2,920 $ 2,903 $ 2,868 $ 3,045 $ 1,639 Net Income/(Loss)............... $ (233) $ (354) $ (461) $ (514) $ (334) $ (91) $ (432) Net Income per limited partnership unit.............. $(2,326.53) $(3,540.82) $(4,612.24) $(5,142.86) $(3,336.73) $(908.16) $(4,316.33) Distributions per limited partnership unit.............. -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)...................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ---------------------- ---------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- --------- ------- --------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Balance Sheet Data: Cash and Cash Equivalents................ $ 223 $ 130 $ 145 $ 185 $ 285 $ 405 $ 148 Real Estate, Net of Accumulated Depreciation........................... $ 8,696 $ 9,171 $ 9,002 $ 9,404 $ 9,826 $ 9,834 $ 10,450 Total Assets............................. $ 9,852 $ 10,346 $ 9,948 $ 10,442 $ 11,056 $ 11,588 $ 12,266 Notes Payable............................ $ 10,615 $ 10,699 $10,678 $ 10,756 $ 10,826 $ 10,890 $ 9,832 General Partners' Capital/ (Deficit)....... $ (1,543) $ (1,536) $(1,538) $ (1,529) $ (1,519) $ (1,512) $ (1,510) Limited Partners' Capital/ (Deficit)....... $ (163) $ 170 $ 65 $ 517 $ 1,021 $ 1,348 $ 1,437 Partners' Deficit.......................... $ (1,706) $ (1,366) $(1,473) $ (1,012) $ (498) $ (164) $ (73) Total Distributions........................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- Book value per limited partnership unit.... $(1,663.27) $1,734.69 $663.27 $5,275.51 $10,418.37 $13,755.10 $14,663.27 Net increase (decrease) in cash and cash equivalents.............................. $ 78 $ (55) $ (40) $ (100) $ (120) $ 257 $ (67) Net cash provided by operating activities............................... $ 349 $ 275 $ 318 $ 143 $ 574 $ 510 $ 295 Ratio of earnings to fixed charges......... 0.73/1 0.60/1 0.60/1 0.56/1 0.72/1 0.92/1 0.33/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO FOUR QUARTERS OPERATING HABITAT APARTMENTS PARTNERSHIP ASSOCIATES LTD. ------------ ------------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $ 975.63 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $1,207.50 $ 0
S-20 1694 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 1695 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth 14,048,000 less approximately 730,932 of deferred maintenance. It is possible, that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 1696 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 1697 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net loss for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Four Quarters Habitat Apartment Associates, Ltd. have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's properties, including the initial purchase, which occurred in 1983. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2030 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-24 1698 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 1699 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns [one property]. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $10,300,000 of balloon payments due on its mortgage debt in October 2001. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 1700 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2% interest, consisting of a 0% limited partnership interest and a 2% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 1701 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 1702 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net loss decreased from $354,000 for the nine months ended September 30, 1997, to $233,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October 2001 and require balloon payments totaling $10,300,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2001 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an S-29 1703 offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 1704 - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,207.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $975.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 1705 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.80% per annum, which resulted in an increase from the initial capitalization rate of 1.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.87%, resulting in a final capitalization rate of 10.63%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 1706 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Four Quarters Habitat $1,493,288 10.63% $14,048,000 ----------- Estimated Total Gross Property Value
- --------------- (1) The total net operating income is equal to total revenues of $2,880,563, less total expenses of $1,286,475 and recurring replacement costs of $100,800. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,082,132. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 1,493,000 Capitalization rate......................................... 10.63% ------------ Gross valuation of your partnership properties.............. $ 14,048,000 Plus: Cash and cash equivalents............................. 145,164 Plus: Other partnership assets, net of security deposits.... 316,899 Less: Mortgage debt, including accrued interest............. (10,722,392) Less: Accounts payable and accrued expenses................. (125,302) Less: Other liabilities..................................... (574,650) ------------ Partnership valuation before taxes and certain costs........ $ 3,087,719 Less: Disposition fees...................................... $ (526,800) Less: Extraordinary capital expenditures for deferred maintenance............................................... (730,932) Less: Closing costs......................................... (351,200) ------------ Estimates net valuation of your partnership................. 1,478,787 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ------------ Estimated net valuation of units............................ 1,478,787 Total number of units............................. 98.0 ------------ Estimated valuation per unit................................ $ 15,090 ============ Cash consideration per unit................................. $ 15,090 ============
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $15,090 by the $25 liquidation preference of each Preferred OP Unit to get 603.75 Preferred OP Units per unit. S-33 1707 - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $15,090 by a price of $38.50 to get 390.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $38.69. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $1,478,787 or .26% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has decreased from $354,000 for the nine months ended September 30, 1997 to $233,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. S-34 1708 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $15,090, based on a total estimated value of your partnership's property of $14,048,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $1,207.50 per year on the number of Preferred OP Units, or distributions of $975.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive S-35 1709 if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 1710 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2030, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT ----------- Cash offer price............................................ $ 15,090 Partnership preferred units................................. 15,090(1) Partnership common units.................................... 15,090(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 15,090 Estimated going concern value............................. $ 13,597 Net book value (deficit).................................. $ (62,098) Alternative going concern value........................... $ 11,344(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 1711 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $13,597 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in 2001. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $11,344 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is ($62,098) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $14,905 per unit, going concern value of $16,272 per unit and liquidation value of $11,259 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- S-38 1712 Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(185), $1,182 and $(3,831). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 1713 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
Total Revenues.............................................. $ 3,025,950 Operating Expenses.......................................... (1,349,870) Replacement Reserves -- Net................................. (282,042) Debt Service................................................ (1,168,429) Capital Expenditures........................................ (66,800) ----------- Net Cash Flow..................................... $ 158,809 ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we S-40 1714 deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the S-41 1715 gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.63%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; (iii) extraordinary capital expenditure estimates in the amount of $730,932; and (iv) a real estate advisory fee equal to 3.75% of real estate value. Stanger observed that your partnership liquidation value of $1,478,787 was divided by the total units outstanding of 98 to provide the liquidation value per unit of $15,090. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,493,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $98,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.13%; (ii) expenses of sale estimated at 3% of property value and (iii) a real estate advisory fee equal to 3.75% of real estate value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 98 to achieve management's estimate of going concern value of $13,597 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $15,090 per unit is equal to management's estimate of liquidation value, and reflects an 11% premium to management's estimate of going concern value of $13,597 . Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) preferred stock of AIMCO with a value equal to $25. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the S-42 1716 above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5%, transaction costs of 2.5% to 5.0%, a realty advisory fee equal to 3.75% of asset value, growth rates of 3% and terminal capitalization rate of 11%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return of the portfolio derived from the discounted cash flow analysis, (13.15% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $14,905, $16,272, and $11,259 representing premiums (discounts) to the offer price of (1.2%), 7.8% and (25.4)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material S-43 1717 changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 1718 YOUR PARTNERSHIP GENERAL Four Quarters Habitat Apartments, Ltd., is a Florida limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in December 1993. AIMCO acquired Insignia in October 1998. There are currently a total of 100 limited partners of your partnership and a total of 98 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 11, 1983 for the purpose of owning an apartment property located in Miami, Florida, known as "Four Quarters Habitat." Your partnership's property is owned by the partnership but is subject to a mortgage. The property consists of 336 apartment units. There are 80 one- bedroom apartments, 256 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 93.32% in 1998, 95.54% in 1997 and 95.54% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations for 1999 total $730,932 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, electrical, siding trim facia, exterior painting, sidewalks, drives and parking lots, exterior lighting, landscape and irrigation, drainage, termite treatment, and pool resurfacing. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $704 $701 $689 $675 $370
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $90,202 of $14,784,000 of assessed valuation with a current yearly tax rate of 2.3479%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 2.3949% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2030 unless earlier dissolved. Your S-45 1719 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 93% and $699, respectively, at December 31, 1998, compared to 95% and $704, respectively, at December 31, 1997. Although there can be no assurance as to the future performance, the general partner expects occupancy to remain strong in the near future. In addition, the general partner noted that it expects to spend approximately $730,932 for capital replacements and improvements at the property in 1999 to update and improve the property's roofing, siding, paving, lighting, and appearance. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $10,593,171, payable to LP Commercial Conduct Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due on S-46 1720 October, 2001. Your partnership also has a second mortgage note outstanding of $350,000, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $8,550,000 of limited partnership units in 1983 for $85,500 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December, 2030, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to your partnership or any limited partner for loss or damage that may be caused by any acts performed or any failure to act by any of them if such acts were done in good faith and in accordance with sound business practices and in accordance with the terms of your partnership's agreement of limited partnership. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership against any claim, loss, damage, liability, action or expense sustained by it or them as a result of any act or omission done in good faith and in accordance with sound business practices and in accordance with the terms of your partnership's agreement of limited partnership, provided that such acts do not constitute fraud, bad faith, breach of fiduciary duty, gross negligence or intentional misconduct. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 1721 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $85,500. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER UNITS % OF TOTAL NUMBER YEAR TRANSFERRED UNITS TRANSACTIONS - ---- ------------ ---------- ------------ 1995.............................................. 0 0 0 1996.............................................. 0 0 0 1997.............................................. 0.5 0.51020% 1 1998.............................................. 0 0 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.00% interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994...................................................... Not available 1995...................................................... Not available 1996...................................................... $40,143 1997...................................................... 40,872 1998...................................................... 43,107
S-48 1722 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1994........................................................ Not available 1995........................................................ Not available 1996........................................................ $ 57,825 1997........................................................ 57,535 1998........................................................ 118,437
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 1723 SELECTED FINANCIAL INFORMATION OF FOUR QUARTERS HABITAT APARTMENT ASSOCIATES Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Four Quarters Habitat Apartment Associates taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from financial information which are not included in this Prospectus Supplement. See "Index to Financial Statements."
FOUR QUARTERS HABITAT APARTMENT ASSOCIATES -------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ----------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- -------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents.............. $ 223 $ 130 $ 145 $ 185 $ 285 $ 405 $ 148 Land & Building........................ 19,646 19,445 19,445 19,171 18,937 18,307 18,307 Accumulated Depreciation............... (10,950) (10,274) (10,443) (9,767) (9,111) (8,473) (7,857) Other Assets........................... 933 1,045 801 853 945 1,349 1,668 ---------- ---------- ---------- ---------- ---------- -------- ---------- Total Assets................... $ 9,852 $ 10,346 $ 9,948 $ 10,442 $ 11,056 $ 11,588 $ 12,266 ========== ========== ========== ========== ========== ======== ========== Notes Payable.......................... $ 10,615 $ 10,699 $ 10,678 $ 10,756 $ 10,826 $ 10,890 $ 9,832 Other Liabilities...................... 943 1,013 743 698 728 862 2,507 ---------- ---------- ---------- ---------- ---------- -------- ---------- Total Liabilities.............. $ 11,558 $ 11,712 $ 11,421 $ 11,454 $ 11,554 $ 11,752 $ 12,339 ---------- ---------- ---------- ---------- ---------- -------- ---------- Partners Deficit............... $ (1,706) $ (1,366) $ (1,473) $ (1,012) $ (498) $ (164) $ (73) ========== ========== ========== ========== ========== ======== ==========
FOUR QUARTERS HABITAT APARTMENT ASSOCIATES -------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- -------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue......................... $ 2,106 $ 2,054 $ 2,840 $ 2,828 $ 2,778 $ 2,720 $ 1,493 Other Income........................... 71 61 80 75 90 325 146 ---------- ---------- ---------- ---------- ---------- -------- ---------- Total Revenue.................. $ 2,177 $ 2,115 $ 2,920 $ 2,903 $ 2,868 $ 3,045 $ 1,639 ---------- ---------- ---------- ---------- ---------- -------- ---------- Operating Expenses..................... $ 685 $ 738 $ 1,116 $ 1,143 $ 937 $ 969 $ 624 General & Administrative............... 79 80 106 104 99 95 102 Depreciation........................... 507 507 676 656 638 616 615 Interest Expense....................... 872 879 1,143 1,177 1,191 1,129 641 Property Taxes......................... 267 265 340 337 337 327 89 ---------- ---------- ---------- ---------- ---------- -------- ---------- Total Expenses................. $ 2,410 $ 2,469 $ 3,381 $ 3,417 $ 3,202 $ 3,136 $ 2,071 ---------- ---------- ---------- ---------- ---------- -------- ---------- Net income before extraordinary items................................ $ (233) $ (354) $ (461) $ (514) $ (334) $ (91) $ (432) Extraordinary Items.................... -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- -------- ---------- Net Loss).............................. $ (233) $ (354) $ (461) $ (514) $ (334) $ (91) $ (432) ========== ========== ========== ========== ========== ======== ========== Net Income per limited partnership unit................................. $(2,326.53) $(3,540.82) $(4,612.24) $(5,142.86) $(3,336.73) $(908.16) $ 4,316.33) ========== ========== ========== ========== ========== ======== ========== Distributions per limited partnership unit................................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ======== ==========
S-50 1724 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership incurred a net loss of $233,000 for the nine months ended September 30, 1998, compared to $354,000 for the nine months ended September 30, 1997. The decrease in net loss of $121,000 was primarily the result of an increase in revenues, coupled with a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $2,177,000 for the nine months ended September 30, 1998, compared to $2,115,000 for the nine months ended September 30, 1997, an increase of $62,000, or 2.93%. The Partnership increased average rental rates by an average of 3.6%. However, this was offset by a slight decrease in occupancy of 2.0% to 93.32%. There was also slight increases in late charges and deposit forfeitures. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $685,000 for the nine months ended September 30, 1998, compared to $738,000 for the nine months ended September 30, 1997, an increase of $53,000, or 7.18%. This decrease is due to exterior painting projects and parking lot repairs incurred during 1997 with no corresponding projects performed during the current year. Partnership Property management expenses totaled $88,000 for the nine months ended September 30, 1998, compared to $86,000 for the nine months ended September 30, 1997, an increase of $2,000, or 2.33%. General and administrative expenses, depreciation, interest and property taxes for the nine months ended September 30, 1998 were comparable to those expenses incurred during the corresponding period for 1997. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership incurred a net loss of $461,000 for the year ended December 31, 1997, compared to a net loss of $514,000 for the year ended December 31, 1996. The decrease in net loss of $53,000 was primarily the result of a slight increase in revenues, coupled with a slight decrease in expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,920,000 for the year ended December 31, 1997, compared to $2,903,000 for the year ended December 31, 1996, an increase of $17,000, or 0.59%. The Partnership was able to raise rental rates an average of 2.4%; however, this was partially offset by a 1.8% decrease in occupancy. The Partnership also experienced a $29,000 increase in bad debts during 1997 due to an increase in delinquent tenants and the move-out of tenants with outstanding past due rent. S-51 1725 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,116,000 for the year ended December 31, 1997, compared to $1,143,000 for the year ended December 31, 1996, a decrease of $27,000 or 2.36%. This decrease is due to lower maintenance expenses as less expensive projects were undertaken at the property during 1997, as compared to 1996. Management expenses totaled $115,000 for the year ended December 31, 1997, compared to $116,000 for the year ended December 31, 1996, a decrease of $1,000, or 0.86%. DEPRECIATION EXPENSE Depreciation expense increased $20,000 (3.05%) to $676,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $1,143,000 for the year ended December 31, 1997, compared to $1,177,000 for the year ended December 31, 1996, a decrease of $34,000, or 2.89%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $514,000 for the year ended December 31, 1996, compared to a net loss of $334,000 for the year ended December 31, 1995. The increase in net loss of $180,000 was primarily the result of an increase in operating and other expenses, partially offset by a slight increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,903 ,000 for the year ended December 31, 1996, compared to $2,868,000 for the year ended December 31, 1995, an increase of $35,000, or 1.22%. This increase is due primarily to a 2.2% increase in rental rates, offset by a $12,000 decrease in deposit forfeitures. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,143,000 for the year ended December 31,1996, compared to $937,000 for the year ended December 31, 1995, an increase of $206,000 or 22%. This increase is due to extensive interior and exterior maintenance projects undertaken at the property during 1996, with no similar projects during 1995. Management expenses totaled $116,000 for the year ended December 31, 1996, compared to $115,000 for the year ended December 31, 1995, an increase of $1,000, or 0.87%.. DEPRECIATION EXPENSE Depreciation expense increased $18,000 (2.82%) to $656,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $1,177,000 for the year ended December 31, 1996, compared to $1,191,000 for the year ended December 31, 1995, a decrease of $14,000, or 1.18%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. S-52 1726 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $223,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $10,615,000. The mortgage requires monthly payments of approximately $94,000 until October, 2001, at which time a balloon payment of approximately $10,300,000 will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 9.84%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 1727 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 98 units of your partnership (up to 24.5 units) for consideration per unit of (i) 603.75 Preferred OP Units, (ii) 390.25 Common OP Units, or (iii) $15,090 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 1728 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 1729 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 1730 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 1731 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 1732 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 1733 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of S-60 1734 operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the S-61 1735 reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. S-62 1736 EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could S-63 1737 cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained S-64 1738 River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 1739 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 1740 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 1741 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 1742 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 1743 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 1744 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Florida law for the purpose as a Delaware limited partnership. The AIMCO of owning and managing Four Quarters Operating Partnership owns interests (either Habitat. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is Partnership Agreement") or as provided by December 31, 2030. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating own, manage, operate, rent lease and repair Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your partnership's partnership organized pursuant to the agreement of limited partnership, your Delaware Revised Uniform Limited Part- partnership may perform any acts to accom- nership Act (as amended from time to time, plish the foregoing including, without or any successor to such statute) (the limitation, borrowing funds and creating "Delaware Limited Partnership Act"), liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 1745 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership by AIMCO Operating Partnership for any selling not more than 100 units for cash and partnership purpose from time to time to the notes to selected persons who fulfill the limited partners and to other persons, and requirements set for your partnership's to admit such other persons as additional agreement of limited partnership. The limited partners, on terms and conditions capital contribution need not be equal for and for such capital contributions as may be all limited partners and no action or established by the general partner in its consent is required in connection with the sole discretion. The net capital admission of any additional limited contribution need not be equal for all OP partners. Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership and The AIMCO Operating Partnership may lend or any of its affiliates may make loans to your contribute funds or other assets to its partnership in such amounts as the general subsidiaries or other persons in which it partner deems appropri- has an equity investment,
S-72 1746 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ate and necessary for the conduct of your and such persons may borrow funds from the partnership's business. Such loans will be AIMCO Operating Partnership, on terms and upon such terms and for such maturities as conditions established in the sole and the managing general partner deems absolute discretion of the general partner. reasonable and the interest charged will be To the extent consistent with the business three percentage points above the interest purpose of the AIMCO Operating Partnership rate being charged to the prime customers of and the permitted activities of the general Harris Trust & Savings Bank of Chicago. The partner, the AIMCO Operating Partnership may partnership may contract with the general transfer assets to joint ventures, limited partners and their affiliates provided that liability companies, partnerships, the required payments to be made by your corporations, business trusts or other partnership are at competitive rates. business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money for partnership contains no restrictions on borrowings, and purposes and if security is required the general partner has full power and therefor, to pledge, mortgage or subject to authority to borrow money on behalf of the any other security device any portion of AIMCO Operating Partnership. The AIMCO your partnership assets and to enter into Operating Partnership has credit agreements any surety arrangements with respect that restrict, among other things, its thereto. ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles limited partners and written demand with a statement of the their representatives to inspect and copy purpose of such demand and at such OP from the books of account and your agreement Unitholder's own expense, to obtain a and any amendments thereto at the prin- current list of the name and last known cipal place of business of your partnership business, residence or mailing address of during normal business hours upon reasonable the general partner and each other OP notice. Unitholder.
Management Control The managing general partner of your All management powers over the business and partnership is solely responsible for the affairs of the AIMCO Operating Partnership management of your partnership's business are vested in AIMCO-GP, Inc., which is the with all rights and powers generally general partner. No OP Unitholder has any conferred by law or necessary, advisable or right to participate in or exercise control consistent in connection therewith. The or management power over the business and exercise of any power conferred by this affairs of the AIMCO Operating Partner- agreement on the managing general partner ship. The OP Unitholders have the right to serves to bind your partnership. No limited vote on certain matters described under partner may take part in the manage- "Comparison of
S-73 1747 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ment, conduct or control of the business of Your Units and AIMCO OP Units -- Voting your partnership or have the power to sign Rights" below. The general partner may not for or bind your partnership to any be removed by the OP Unitholders with or agreement or document. without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for loss to the AIMCO Operating Partnership for or damage that may be caused by any act losses sustained, liabilities incurred or performed by it or any failure to act if benefits not derived as a result of errors such acts were done in good faith and in in judgment or mistakes of fact or law of accordance with sound business practices and any act or omission if the general partner in accordance with the terms of your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship. In addition, the general partner and indemnification of AIMCO, or any director or its affiliates are entitled to officer of AIMCO (in its capacity as the indemnification by your partnership against previous general partner of the AIMCO any claim, loss, damage, liability, action Operating Partnership), the general partner, or expense sustained by it or them as a any officer or director of general partner result of any act or omission done in good or the AIMCO Operating Partnership and such faith and in accordance with sound business other persons as the general partner may practices and in accordance with the terms designate from and against all losses, of your partnership's agreement of limited claims, damages, liabilities, joint or partnership, provided that such acts do not several, expenses (including legal fees), constitute fraud, bad faith, breach of fines, settlements and other amounts fiduciary duty, gross negligence or incurred in connection with any actions intentional misconduct. relating to the operations of the AIMCO Operating
S-74 1748 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, a general partner of partner has exclusive management power over your partnership may be removed for cause, the business and affairs of the AIMCO exercisable upon written notice upon the Operating Partnership. The general partner written consent or affirmative vote of all may not be removed as general partner of the of the limited partners or, under certain AIMCO Operating Partnership by the OP circumstances, the limited partners owning Unitholders with or without cause. Under the 75% or more of the limited partnership units AIMCO Operating Partnership Agreement, the outstanding. If there are no remaining general partner may, in its sole discretion, general partners, all of the limited part- prevent a transferee of an OP Unit from ners or holders of 75% of more the limited becoming a substituted limited partner partnership units, under certain pursuant to the AIMCO Operating Partnership circumstances, may elect a substitute Agreement. The general partner may exercise general partner. A general partner may sell this right of approval to deter, delay or up to 50% of its interest owned at the time hamper attempts by persons to acquire a of formation with the consent of at least controlling interest in the AIMCO Operating 51% of the limited partners. A limited Partnership. Additionally, the AIMCO partner may not transfer his interests in Operating Partnership Agreement contains your partnership without the consent of the restrictions on the ability of OP general partner. Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the general partner of your partnership or Agreement, whereby the general partner may, by limited partners owning at least 10% of without the consent of the OP Unitholders, the then outstanding limited partnership amend the AIMCO Operating Partnership interests. Such amendments will be passed if Agreement, amendments to the AIMCO Operating within ninety days of submission to the Partnership Agreement require the consent of limited partners, the limited partners the holders of a majority of the outstanding owning 51% of the outstanding units consent. Common OP Units, excluding AIMCO and certain However, no amendment may reduce the rights other limited exclusions (a "Majority in or interests or enlarge the obligations of Interest"). Amendments to the AIMCO the limited partners. The general partner Operating Partnership Agreement may be may amend your partnership's agreement of proposed by the
S-75 1749 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP limited partnership as required by law, general partner or by holders of a Majority admit limited partners or is necessary to in Interest. Following such proposal, the effect changes which do not adversely affect general partner will submit any proposed the rights or increase the obligations of amendment to the OP Unitholders. The general limited partners. partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives 28.58% of the remaining Cash Flow its capacity as general partner of the AIMCO after distributions of 12% per annum of each Operating Partnership. In addition, the limited partner's capital contribution has AIMCO Operating Partnership is responsible been made to each limited partner. Moreover, for all expenses incurred relating to the the general partner or certain affiliates AIMCO Operating Partnership's ownership of may be entitled to compensation for its assets and the operation of the AIMCO additional services rendered. Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has bound by or personally liable for any of the personal liability for the AIMCO Operating expenses, liabilities or obligation of your Partnership's debts and obligations, and partnership beyond the amount contributed by liability of the OP Unitholders for the the limited partner to the capital of your AIMCO Operating Partnership's debts and partnership, its notes for capital obligations is generally limited to the contributions to your partnership and the amount of their investment in the AIMCO limited partner's share of undistributed Operating Partnership. However, the profits of your partnership. limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-76 1750 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Your partnership's agreement of limited Unless otherwise provided for in the partnership provides that any partner or relevant partnership agreement, Delaware law affiliate may engage in or possess an generally requires a general partner of a interest in other business ventures of any Delaware limited partnership to adhere to nature and description, including the fiduciary duty standards under which it owes acquisition, ownership, financing, leasing, its limited partners the highest duties of operation, management, syndication, good faith, fairness and loyalty and which brokerage, sale, construction and generally prohibit such general partner from development of real property, and neither taking any action or engaging in any your partnership nor any other partners transaction as to which it has a conflict of shall have any rights in or to such interest. The AIMCO Operating Partnership independent venture or the income or profits Agreement expressly authorizes the general derived therefrom. Moreover, the general partner to enter into, on behalf of the partner is not required to devote all of AIMCO Operating Partnership, a right of their time or business efforts to the first opportunity arrangement and other affairs of your partnership, but they are conflict avoidance agreements with various required to devote so much time and atten- affiliates of the AIMCO Operating tion to your partnership as is reasonably Partnership and the general partner, on such necessary and advisable to manage the terms as the general partner, in its sole affairs of your partnership to be the best and absolute discretion, believes are advantage of your partnership. advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of In general, your partnership's agreement of the general partner by providing that the limited partnership and the AIMCO Operating general partner, and its officers and Partnership Agreement have limitations on directors will not be liable or accountable the liability of the general partner but in damages to the AIMCO Operating such limitations differ and provide more Partnership, the limited partners or as- protection for the general partner of the signees for errors in judgment or mistakes AIMCO Operating Partnership. of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to
S-77 1751 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-78 1752 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, limited AIMCO Operating Partnership OP Unitholders have voting partners have voting rights Agreement, the holders of rights only with respect to in certain circumstances and the Preferred OP Units will certain limited matters such are not deemed to take part have the same voting rights as certain amendments and in the control of your as holders of the Common OP termination of the AIMCO partnership by virtue of Units. See "Description of Operating Partnership their voting rights. If a OP Units" in the accompany- Agreement and certain court of competent ing Prospectus. So long as transactions such as the jurisdiction determines or any Preferred OP Units are institution of bankruptcy the opinion of counsel which outstanding, in addition to proceedings, an assignment is reasonably satisfactory any other vote or consent of for the benefit of creditors to the holders of 51% of the partners required by law or and certain transfers by the outstanding units is by the AIMCO Operating general partner of its obtained that the approval Partnership Agreement, the interest in the AIMCO of the following transac- affirmative vote or consent Operating Partnership or the tions by less than all of of holders of at least 50% admission of a successor the limited partners will of the outstanding Preferred general partner. not be deemed to be control OP Units will be necessary of your partnership by the for effecting any amendment Under the AIMCO Operating limited partners, the hold- of any of the provisions of Partnership Agreement, the ers of a majority of the the Partnership Unit general partner has the then outstanding units may Designation of the Preferred power to effect the amend your partnership's OP Units that materially and acquisition, sale, transfer, agreement of limited adversely affects the rights exchange or other partnership and dissolve of or preferences of the disposition of any assets of your partnership. If the holders of the Preferred OP the AIMCO Operating foregoing conditions are Units. The creation or Partnership (including, but satisfied, the limited issuance of any class or not limited to, the exercise partners owning at least 75% series of partnership units, or grant of any conversion, of the outstanding units may including, without option, privilege or also remove a general limitation, any partner- subscription right or any partner and elect a ship units that may have other right available in substitute general partner rights senior or superior to connection with any assets in the event there is no the Preferred OP Units, at any time held by the remaining general partner. shall not be deemed to AIMCO Operating Partnership) However, if such showing is materially adversely affect or the merger, not made, all of the above the rights or preferences of consolidation, issues will require the ap- the holders of Preferred OP reorganization or other proval of all of the limited Units. With respect to the combination of the AIMCO partners. The holders of a exercise of the above Operating Partnership with majority of the then described voting rights, or into another entity, all outstanding must approve the each Preferred OP Units without the consent of the sale of your partnership's shall have one (1) vote per OP Unitholders. property and the sale by the Preferred OP Unit. general partner of its The general partner may general partner interests. cause the dissolution of the AIMCO Operating Partnership The last remaining general by an "event of withdrawal," partner may cause the as defined in the Delaware dissolution of the your Limited Partnership Act partnership by retiring, (including, without limi- unless the limited partners tation, bankruptcy), unless, owning more the 75% of the within 90 days after the then outstanding units elect with- to continue your partnership and elect a
S-79 1753 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS new general partner within drawal, holders of a sixty days of the "majority in interest," as retirement. defined in the Delaware Limited Partnership Act, In general, you have greater agree in writing, in their voting rights in your sole and absolute partnership than you will discretion, to continue the have as an OP Unitholder. OP business of the AIMCO Unitholders can not remove Operating Partnership and to the general partner of the the appointment of a AIMCO Operating Partnership. successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. The quarterly cash distributions to distribute quarterly all, general partner of your at the rate of $0.50 per or such portion as the partnership annually Preferred OP Unit; provided, general partner may in its distributes substantially however, that at any time sole and absolute discretion all of your partnership's and from time to time on or determine, of Available Cash Cash Flow (as defined in after the fifth anniversary (as defined in the AIMCO your partnership's agreement of the issue date of the Operating Partnership of limited partnership) with Preferred OP Units, the Agreement) generated by the each partner receiving their AIMCO Operating Partnership AIMCO Operating Partnership pro rata share in accordance may adjust the annual during such quarter to the with their ownership of distribution rate on the general partner, the special units. Such distributions Preferred OP Units to the limited partner and the are made at convenient lower of (i) 2.00% plus the holders of Common OP Units period intervals, not less annual interest rate then on the record date es- than quarterly, within sixty applicable to U.S. Treasury tablished by the general days after the close of the notes with a maturity of partner with respect to such quarter. Any proceeds re- five years, and (ii) the quarter, in accordance with ceived from the sale or annual dividend rate on the their respective interests refinancing of your most recently issued AIMCO in the AIMCO Operating partnership's property is non-convertible preferred Partnership on such record distributed in accordance stock which ranks on a date. Holders of any other with your partnership's parity with its Class H Preferred OP Units issued in agreement of limited Cumulative Preferred Stock. the future may have priority partnership. The distribu- Such distributions will be over the tions payable to the cumulative from the date of partners are not fixed in origi- amount and depend
S-80 1754 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS upon the operating results nal issue. Holders of general partner, the special and net sales or refinancing Preferred OP Units will not limited partner and holders proceeds available from the be entitled to receive any of Common OP Units with disposition of your distributions in excess of respect to distributions of partnership's assets. Your cumulative distributions on Available Cash, partnership has not made the Preferred OP Units. No distributions upon distributions in the past interest, or sum of money in liquidation or other and is not projected to make lieu of interest, shall be distributions. See "Per distributions in 1999. payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his interests if for the Preferred OP Units for the OP Units. The AIMCO the transferee is a citizen and the Preferred OP Units Operating Partnership and resident of the U.S., are not listed on any Agreement restricts the the transferor provides an securities exchange. The transferability of the opinion
S-81 1755 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS that such transfer is made Preferred OP Units are OP Units. Until the in compliance with the subject to restrictions on expiration of one year from securities law, the transfer as set forth in the the date on which an OP transferee makes the rep- AIMCO Operating Partnership Unitholder acquired OP resentations required by Agreement. Units, subject to certain your partnership's agreement exceptions, such OP of limited partnership and Pursuant to the AIMCO Unitholder may not transfer the managing general partner Operating Partnership all or any portion of its OP consents, which consent may Agreement, until the Units to any transferee be withheld in its sole expiration of one year from without the consent of the discretion and will be the date on which a holder general partner, which withheld if in the opinion of Preferred OP Units consent may be withheld in of counsel, such transfer acquired Preferred OP Units, its sole and absolute would result in the subject to certain discretion. After the termination of your exceptions, such holder of expiration of one year, such partnership for tax Preferred OP Units may not OP Unitholder has the right purposes. However, in order transfer all or any portion to transfer all or any for such transferee to be of its Preferred OP Units to portion of its OP Units to substituted for the any transferee without the any person, subject to the transferor, in addition to consent of the general satisfaction of certain con- the foregoing requirements, partner, which consent may ditions specified in the a written instrument be withheld in its sole and AIMCO Operating Partnership evidencing the transfer must absolute discretion. After Agreement, including the be duly executed and ac- the expiration of one year, general partner's right of knowledged, the transfer fee such holders of Preferred OP first refusal. See must be paid, the general Units has the right to "Description of OP Units -- partner must consent, which transfer all or any portion Transfers and Withdrawals" may be withheld in its sole of its Preferred OP Units to in the accompanying discretion and such other any person, subject to the Prospectus. requirements as are set satisfaction of certain forth in your partnership's conditions specified in the After the first anniversary agreement of limited AIMCO Operating Partner- of becoming a holder of partnership must be ship Agreement, including Common OP Units, an OP satisfied. the general partner's right Unitholder has the right, There are no redemption of first refusal. subject to the terms and rights associated with your conditions of the AIMCO units. After a one-year holding Operating Partnership period, a holder may redeem Agreement, to require the Preferred OP Units and AIMCO Operating Partnership receive in exchange to redeem all or a portion therefor, at the AIMCO Oper- of the Common OP Units held ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to aggregate amount of acquire some or all of the dividends tendered Common OP Units in
S-82 1756 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 1757 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 1758 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 1759 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 1760 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 1761 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 1762 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 1763 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 1764 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 1765 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 1766 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 28.58% of the remaining Cash Flow after distributions of 12% per annum of each limited partner's capital contribution has been made to each limited partner and may receive reimbursement for expenses generated in its capacity as general partner from your partnership. The property manager received management fees of $57,825 in 1996, $57,535 in 1997 and $118,437 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 1767 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $369,705 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR Bank of America's reference rate, at the election of the Company, plus, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 1768 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-95 1769 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Note A -- Basis of Presentation (unaudited)................. F-5 Balance Sheets as of December 31, 1997 and 1996 (unaudited)............................................... F-6 Statements of Operations for the year ended December 31, 1997 and 1996 (unaudited)................................. F-7 Statements of Changes in Partners' Deficit for the year ended December 31, 1997 and 1996 (unaudited).............. F-8 Statements of Cash Flows for the year ended December 31, 1997 and 1996 (unaudited)................................. F-9 Notes to the Financial Statements (unaudited)............... F-10
F-1 1770 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES CONDENSED BALANCE SHEET-(UNAUDITED) (IN THOUSANDS) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 223 Receivables and deposits.................................... 500 Restricted escrows.......................................... 185 Other assets................................................ 248 Investment Property: Land...................................................... $ 1,776 Building and related personal property.................... 17,870 -------- 19,646 Less: Accumulated depreciation............................ (10,950) 8,696 -------- ------- Total Assets...................................... $ 9,852 ======= LIABILITIES AND PARTNERS' DEFICIT Accounts payable and accrued liabilities.................... $ 943 Notes payable............................................... 10,615 Partners' Deficit........................................... (1,706) ------- Total Liabilities and Partners' Deficit........... $ 9,852 =======
See accompanying note. F-2 1771 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ------- ------- Revenues: Rental income............................................. $2,106 $2,054 Other income.............................................. 71 61 ------ ------ Total Revenues.................................... 2,177 2,115 Expenses: Operating expenses........................................ 685 738 General and administrative expenses....................... 79 80 Depreciation expense...................................... 507 507 Interest expense.......................................... 872 879 Property tax expense...................................... 267 265 ------ ------ Total Expenses.................................... 2,410 2,469 Net Loss.......................................... $ (233) $ (354) ====== ======
See accompanying note. F-3 1772 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1998 1997 ------ ------ Operating Activities: Net loss.................................................. $(233) $(354) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................. 566 567 Changes in accounts: Receivables and deposits and other assets.............. (183) (248) Accounts payable and accrued expenses.................. 199 310 ----- ----- Net cash provided by operating activities......... 349 275 Investing Activities Property improvements and replacements.................... (201) (274) Net increase in restricted escrows........................ (7) (5) ----- ----- Net cash used in investing activities............. (208) (279) Financing Activities Payments on mortgage...................................... (63) (51) ----- ----- Net cash used in financing activities..................... (63) (51) ----- ----- Net increase (decrease) in cash and cash equivalents...... 78 (55) Cash and cash equivalents at beginning of year............ 145 185 ----- ----- Cash and cash equivalents at end of period................ $ 223 $ 130 ===== =====
See accompanying note. F-4 1773 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Four Quarters Habitat Apartment Associates, Ltd. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 1774 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES BALANCE SHEET (UNAUDITED) DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 145 Receivables and deposits.................................... 306 Restricted escrows.......................................... 178 Other assets................................................ 317 Investment property (Notes B and D): Land...................................................... $ 1,776 Buildings and related personal property................... 17,669 -------- 19,445 Less accumulated depreciation............................... (10,443) 9,002 -------- ------- $ 9,948 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable and other accrued liabilities............ $ 578 Tenant security deposit liability......................... 165 Mortgage note payable (Notes B and D)..................... 10,678 ------- 5,588 Partners' deficit: General partner........................................... $ (1,538) Limited partners (98 units issued and outstanding)........ 65 (1,473) -------- ------- $ 6,747 =======
See accompanying notes. F-6 1775 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 2,840 $ 2,828 Other income.............................................. 80 75 ---------- ---------- 2,920 2,903 Expenses: Operating................................................. $ 1,116 $ 1,143 General and administrative................................ 106 104 Depreciation.............................................. 676 656 Interest.................................................. 1,143 1,177 Property taxes............................................ 340 337 ---------- ---------- 3,381 3,417 ---------- ---------- Net loss.................................................... $ (461) $ (514) ========== ========== Net loss allocated to general partner (2%).................. (9) (10) Net loss allocated to limited partners (98%)................ (452) (504) ---------- ---------- $ (461) $ (514) ========== ========== Net loss per limited partnership unit....................... $(4,612.24) $(5,142.86) ========== ==========
See accompanying notes. F-7 1776 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES STATEMENT OF CHANGES IN PARTNERS' DEFICIT (UNAUDITED) (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- ------- Deficit at December 31, 1995................................ $(1,519) $1,021 $ (498) Net loss for the year ended December 31, 1996............. (10) (504) (514) ------- ------ ------- Deficit at December 31, 1996................................ (1,529) 517 (1,012) Net loss for the year ended December 31, 1997............. (9) (452) (461) ------- ------ ------- Deficit at December 31, 1997................................ $(1,538) $ 65 $(1,473) ======= ====== =======
See accompanying notes. F-8 1777 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------- 1997 1996 ------ ------ Cash flows from operating activities Net loss.................................................. $ (461) $ (514) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 676 656 Amortization of loan costs............................. 80 80 Change in accounts: Receivables and deposits and other assets............ (22) (49) Accounts payable and other liabilities............... 45 (30) ------ ------ Net cash provided by operating activities......... 318 143 Cash flows from investing activities Property improvements and replacements.................... (274) (234) Net deposits to restricted escrows........................ (6) 61 ------ ------ Net cash used in investing activities..................... (280) (173) Cash flows from financing activities Principal payments on mortgage notes payable.............. (78) (70) ------ ------ Net cash used in financing activities..................... (78) (70) ------ ------ Net decrease in cash and cash equivalents................... (40) (100) Cash and cash equivalents at beginning of year.............. 185 285 ------ ------ Cash and cash equivalents at end of year.................... $ 145 $ 185 ====== ====== Supplemental disclosure of cash flow information Cash paid for interest.................................... $1,063 $1,097 ====== ======
See accompanying notes. F-9 1778 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Four Quarters Habitat Apartments in Miami, Florida. Ninety-eight units of limited partnership interests and a general partner interest were issued. The Partnership shall terminate on December 31, 2030, unless terminated sooner, pursuant to the agreement. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the years ended December 31, 1997 or 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Loan Costs Loan costs incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. F-10 1779 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Partnership Allocations Net income or losses are allocated 98% to the limited partners and 2% to the general partner in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the general and limited partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. NOTE B -- MORTGAGE NOTE PAYABLE Mortgage note payable consists of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company bearing interest of 9.84% per annum. Monthly payments of principal and interest of approximately $94,000 are due through September 2001, with a balloon payment of approximately $10,300,000 due in October 2001........................... $10,678 =======
Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998...................................................... $ 85 1999...................................................... 94 2000...................................................... 104 2001...................................................... 10,395 ------- $10,678 =======
The apartment property is pledged as collateral on the mortgage notes. F-11 1780 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the general partner and its affiliates for the administration and management of all partnership activities. Affiliates of Insignia Financial Group, Inc. ("Insignia"), who is an affiliate of the general partner of Four Quarters Habitat Apartment Associates, provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates (in thousands):
1997 1996 ---- ---- Property management fees.................................... $115 $116 Reimbursement for investor services, asset management and partnership accounting.................................... 98 98
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ------------- ---------------- Four Quarters Habitat Miami, Florida.............................. $10,678 $1,776 $13,107 $4,562 ======= ====== ======= ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ------ ---------------- ------- ------------ -------- ----------- Four Quarters............... $1,776 $17,669 $19,445 $10,443 05/83 5-30 ====== ======= ======= =======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands):
1997 1996 ------- ------- Investment Property Balance at beginning of year.............................. $19,171 $18,937 Property improvements..................................... 274 234 ------- ------- Balance at end of year............................ $19,445 $19,171 ======= ======= Accumulated Depreciation Balance at beginning of year.............................. $ 9,767 $ 9,111 Additions charged to expense.............................. 676 656 ------- ------- Balance at end of year............................ $10,443 $ 9,767 ======= =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 and 1996 is $19,445,000 and $19,171,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 and 1996 is $15,936,000 and $15,102,000, respectively. F-12 1781 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data):
1997 1996 ------- ------- Net loss as reported........................................ $ (461) $ (514) Deduct: Depreciation differences.................................. (159) (157) Other..................................................... -- 58 ------- ------- Federal taxable loss........................................ $ (620) $ (613) ======= ======= Federal taxable loss per limited partnership unit $(6,200) $(6,130) ======= =======
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities at December 31, 1997 (in thousands): Net deficit as reported..................................... $(1,473) Accumulated depreciation.................................... (5,493) Other....................................................... (1) Syndication fees............................................ 757 ------- Net deficit -- tax basis.................................... $(6,210) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the general partner of the Partnership and the company that manages the Partnership. F-13 1782 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1783 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1784 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1785 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1786 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1787 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1788 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1789 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1790 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1791 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1792 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1793 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1794 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1795 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1796 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1797 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1798 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1799 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1800 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1801 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1802 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1803 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1804 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1805 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1806 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1807 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1808 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1809
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1810 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1811
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1812 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1813 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1814 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1815
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1816 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1817 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1818 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1819
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1820 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1821 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1822 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 1823 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 1824 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 1825 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 1826 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 1827 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 1828 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 1829 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 1830 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 1831 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 1832 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Four Quarters Habitat Apartment Associates Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Four Quarters Habitat Apartment Associates Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $15,090 in cash, or 392 Common OP Units of the Purchaser, or 603.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 1833 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 1834 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 1835 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 1836
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 1837
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 1838
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 1839
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 1840 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 1841 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Georgetown of Columbus Associates, L.P. in exchange for your choice of: 1,453.00 of our 8.0% Class Two Partnership Preferred Units; 939 of our Partnership Common Units; or $36,322 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $36,322 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 1842 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Georgetown of Columbus Associates, L.P. .............. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-46 Legal Proceedings............................ S-46 History of the Partnership................... S-46 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-50 THE OFFER...................................... S-52 Terms of the Offer; Expiration Date.......... S-52 Acceptance for Payment and Payment for Units...................................... S-52 Procedure for Tendering Units................ S-53 Withdrawal Rights............................ S-56 Extension of Tender Period; Termination; Amendment.................................. S-56 Proration.................................... S-57
i 1843
PAGE ----- Fractional OP Units.......................... S-57 Future Plans of the AIMCO Operating Partnership................................ S-57 Voting by the AIMCO Operating Partnership.... S-58 Dissenters' Rights........................... S-58 Conditions of the Offer...................... S-58 Effects of the Offer......................... S-61 Certain Legal Matters........................ S-61 Fees and Expenses............................ S-63 Accounting Treatment......................... S-63 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-64 Tax Consequences of Exchanging Units Solely for OP Units............................... S-64 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-65 Tax Consequences of Exchanging Units Solely for Cash................................... S-65 Disguised Sale Treatment..................... S-65 Adjusted Tax Basis........................... S-66 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-66 Passive Activity Losses...................... S-66 Tax Reporting................................ S-67 Foreign Offerees............................. S-67 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-67 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-69 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-76 DESCRIPTION OF PREFERRED OP UNITS.............. S-82 General...................................... S-82 Ranking...................................... S-82
PAGE ----- Distributions................................ S-82 Allocation................................... S-83 Liquidation Preference....................... S-83 Redemption................................... S-84 Voting Rights................................ S-84 Restrictions on Transfer..................... S-85 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-85 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-87 CONFLICTS OF INTEREST.......................... S-91 Conflicts of Interest with Respect to the Offer...................................... S-91 Conflicts of Interest that Currently Exist for Your Partnership....................... S-91 Competition Among Properties................. S-91 Features Discouraging Potential Takeovers.... S-91 Future Exchange Offers....................... S-91 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-92 LEGAL MATTERS.................................. S-93 EXPERTS........................................ S-93 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 1844 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $5,149,000, less approximately $266,063 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 1845 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 1846 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2026 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 1847 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 1848 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,084,727 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 1849 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002 and require balloon payments of $3,084,727. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 1850 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,906 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,347.50 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 1851 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 1852 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 554,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... 5,149,000 Plus: Cash and cash equivalents............................. 15,000 Plus: Other partnership assets, net of security deposits.... 234,893 Less: Mortgage debt, including accrued interest............. (3,897,980) Less: Accounts payable and accrued expenses................. (161,470) Less: Other liabilities..................................... (36,602) ----------- Partnership valuation before taxes and certain costs........ 1,302,841 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (266,063) Less: Closing costs......................................... (128,725) ----------- Estimates net valuation of your partnership................. 908,053 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 908,053 Total number of units............................. 25.0 ----------- Estimated valuation per unit................................ 36,322 =========== Cash consideration per unit................................. $ 36,322 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $36,322 by the $25 liquidation preference of each Preferred OP Unit to get 1,453.00 Preferred OP Units per unit. S-9 1853 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $36,322 by a price of $38.69 to get 939 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 36,322 Partnership Preferred Units................................. $ 36,322 Partnership Common Units.................................... $ 36,322 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 36,522 Estimated going concern value............................. $ 22,620 Alternative going concern value(1)........................ $ 26,652 Net book value (deficit).................................. $(84,888)
- --------------- (1) Assumes sale of the property when the balloon payment is due instead of refinancing the mortgage. S-10 1854 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Georgetown of Columbus Associates, L.P. is a Delaware limited partnership which was formed on October 5, 1983 for the purpose of owning and operating a single property located in Columbus, Ohio, known as "Georgetown of Columbus Apartments." Your partnership's property consists of 150 units and was built in 1962. Your partnership has no employees. As of September 30, 1998, there were 25 units of limited partnership interest issued and outstanding, which were held of record by 53 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,500,000 of limited partnership units in 1983. Between January 1, 1993 and December 31, 1998 your partnership made no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2026, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,645,028, payable to FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $131,718, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 1855 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,453.00 of our Class Two Partnership Preferred Units; - 939 of our Partnership Common Units; or - $36,322 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 25 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,453.00 Preferred OP Units, 939 Common OP Units, or $36,322 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 1856 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 1857 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $36,322 in cash, 1,453.00 Preferred OP Units or 939 Common OP Units. Both your units and the OP Units S-14 1858 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $36,322. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $20,563 for the fiscal year ended December 31, 1998. The property manager received management fees of $57,240 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $227,013 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 1859 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 1860
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 1861 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ------------ 120,368 142,400 --------- ------------ SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ------------ (913) (9,075) Minority interests in service company business............ -- (10) --------- ------------ Partnership's shares of income from service company business............................................... (913) (9,085) --------- ------------ General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ------------ Net income........................................ $ 24,703 $ (36,125) ========= ============ PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 1862
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 1863 SUMMARY FINANCIAL INFORMATION OF GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. The summary financial information of Georgetown of Columbus Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Georgetown of Columbus Associates, L.P. for the years ended December 31, 1997, 1996 and 1995 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 30, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 853,000 $ 830,000 $ 1,121,000 $ 1,046,000 $ 1,009,000 $ 987,000 963,000 Net Income/(Loss)............ 90,000 83,000 56,000 (29,000) 20,000 28,000 (206,000) Net Income (Loss) per limited partnership unit........... 3,564.00 3,286.80 2,138.40 (1,148,40) 792.00 1,108.80 (8,157.60) Distributions per limited partnership unit........... -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 17,000 $ 9,000 $ 15,000 $ 18,000 $ 61,000 $ 97,000 $ 61,000 Real Estate, Net of Accumulated Depreciation............. 1,482,000 1,499,000 1,512,000 1,539,000 1,554,000 1,592,000 1,617,000 Total Assets............. 1,825,000 1,809,000 1,855,000 1,854,000 1,900,000 1,979,000 1,987,000 Notes Payable................ 3,665,000 3,762,000 3,723,000 3,814,000 3,889,000 3,959,000 4,022,000 General Partners Capital/ (Deficit) Limited Partners Capital/ (Deficit) Partners' Capital (Deficit)................ (2,032,000) (2,097,000) (2,122,000) (2,178,000) (2,148,000) (2,168,000) (2,196,000) Total Distributions........ -- -- -- -- -- -- -- Book value per limited partnership unit......... -- -- -- -- -- -- -- Net increase (decrease) in cash and cash equivalents.............. 2,000 (9,000) (3,000) (43,000) (36,000) 46,000 (80,000) Net cash provided by operating activities..... 206,000 134,000 187,000 168,000 130,000 202,000 102,000 Ratio of earnings to fixed charges.................. 1.36/1 1.32/1 1.16/1 0.92/1 1.06/1 1.08/1 0.44/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,347.50 $-0- Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $2,906.00 $-0-
S-20 1864 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 1865 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $5,149,000 less approximately $266,063 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 1866 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 1867 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2026 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 1868 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 1869 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,084,000 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 1870 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest, consisting of no limited partnership interest and a 1.00% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 1871 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 1872 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $83,000 for the nine months ended September 30, 1997, to $90,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments totaling $3,084,727. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a majority vote of the limited partners. If the sale was approved, S-29 1873 all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions of for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,906 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 1874 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,347.50 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 1875 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Georgetown of Columbus Apartments $554,000 10.75% $5,149,100 ----------
(1) The total net operating income is equal to total revenues of $1,111,150, less total expenses of $512,621 and recurring replacement costs of $45,000. S-32 1876 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $908,053. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 554,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... 5,149,000 Plus: Cash and cash equivalents............................. 15,000 Plus: Other partnership assets, net of security deposits.... 234,893 Less: Mortgage debt, including accrued interest............. (3,897,980) Less: Accounts payable and accrued expenses................. (161,470) Less: Other liabilities..................................... (36,602) ----------- Partnership valuation before taxes and certain costs........ 1,302,841 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (266,063) Less: Closing costs......................................... (128,725) ----------- Estimated net valuation of your partnership................. 908,053 Percentage of estimated net valuation allocated to units.... 100.00% ----------- Estimated net valuation of units............................ 908,053 Total number of units............................. 25.0 ----------- Estimated valuation per unit................................ 36,322 =========== Cash consideration per unit................................. $ 36,322 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $36,322 by the $25 liquidation preference of each Preferred OP Unit to get 1,453.00 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $36,322 by a price of $38.50 to get 943.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,153, of which, $908,053 or .16% is the net valuation of your partnership. S-33 1877 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $83,000 for the nine months ended September 30, 1997 to $90,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 1878 11. The estimated unit value of $36,322, based on a total estimated value of your partnership's property of $5,149,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $2,906 per year on the number of Preferred OP Units, or distributions of $2,347.50 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 1879 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 1880 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 2026, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 36,322 Partnership preferred units................................. 36,322(1) Partnership common units.................................... 36,322(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 36,322 Estimated going concern value............................. $ 22,620 Net book value (deficit).................................. $(84,888) Alternative going concern value........................... $ 26,652(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 1881 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $22,620 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in November 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $26,652 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $84,888 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net value of $32,239 per unit, going concern value of $23,351 per unit and liquidation value of $27,249 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- S-38 1882 Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represent premiums (discounts) to the offer price of $(9,073), $(4,083) and $(12,971). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 1883 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
GEORGETOWN OF COLUMBUS ----------- Total Revenues.............................................. $1,149,253 Operating Expenses.......................................... (595,189) Replacement Reserves -- Net................................. (70,523) Debt Service................................................ (413,376) Capital Expenditures........................................ (42,200) ---------- Net Cash Flow..................................... $ 27,965 ==========
The above budget at the time it was made was forward-looking information developed by the general partner of your partnership. Therefore, the budget was dependent upon future events with respect to the ability of your partnership to meet such budget. The budget incorporates various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative S-40 1884 expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. S-41 1885 Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $266,063. Stanger observed that your partnership liquidation value of $908,053 was divided by the total units outstanding of 25 to provide the liquidation value per unit of $36,322. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $554,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $36,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.5%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 25 to achieve management's estimate of going concern value of $22,620 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $36,322 per unit is equal to management's estimate of liquidation value, and reflects a substantial premium to management's estimate of going concern value of $22,620. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. S-42 1886 Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated level internal rate of return derived from the discounted cash flow analysis, (13.0% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 75% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $32,239, $23,351 and $27,249, representing premiums (discounts) to the offer price of (11%), (35%) and (25%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated S-43 1887 to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 1888 YOUR PARTNERSHIP GENERAL Georgetown of Columbus Associates, L.P., is a Delaware limited partnership which completed a private offering in October, 1983. Insignia acquired the general partner of your partnership in December, 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 53 limited partners of your partnership and a total of 25 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 5, 1983 for the purpose of owning an apartment property located in Columbus, Ohio, known as "Georgetown of Columbus Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1962 and consists of 150 apartment units. There are 10 one-bedroom apartments, 130 two-bedroom apartments and 10 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 94.73% in 1998, 95.33% in 1997 and 95.33% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $266,000 and are intended to be paid for out of cash flow or borrowings. Renovation items include heating, ventilation and air conditioning systems, electrical, balconies/patios, sidewalks, drives and parking lot, exterior lighting, landscaping and irrigation, and fence. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $598 $560 $536 $530 $517
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $90,202 of $1,607,870 of assessed valuation with a current yearly tax rate of 5.61%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 5.89% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its S-45 1889 investment portfolio. Your partnership will terminate on December 31, 2026 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 95% and $596, respectively, at December 31, 1998, compared to 95% and $598, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects rental rates to improve in the near future because of the market's growth in rents. In addition, the general partner noted that it expects to spend approximately $266,000 for initial capital expenditures at the property in 1999 to repair/replace the property's electrical, HVAC, balconies, sidewalks, parking lots, exterior lighting, landscaping/irrigation, and fence. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,645,028, payable to S-46 1890 FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $131,718, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,500,000 of limited partnership units in 1983. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2026, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership will not incur any liability to your partnership or any limited partner for any mistakes or errors in judgment or for any acts or omission believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership agreement. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct by the general partner. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 1891 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owners). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest in your partnership, as a general partner. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $24,062 1995........................................................ $25,936 1996........................................................ $27,513 1997........................................................ $29,242 1998........................................................ $31,830
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $49,664 1995........................................................ $50,789 1996........................................................ $51,864 1997........................................................ $55,922 1998........................................................ $57,240
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-48 1892 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 17,000 $ 9,000 $ 15,000 $ 18,000 $ 61,000 $ 97,000 $ 51,000 Land & Building............... 4,929,000 4,848,000 4,886,000 4,815,000 4,738,000 4,690,000 4,637,000 Accumulated Depreciation...... (3,447,000) (3,350,000) (3,374,000) (3,276,000) (3,184,000) (3,098,000) (3,019,000) Other Assets.................. 326,000 301,000 328,000 297,000 286,000 290,000 317,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 1,825,000 $ 1,808,000 1,855,000 $ 1,854,000 $ 1,901,000 $ 1,979,000 $ 1,986,000 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 3,665,000 $ 3,762,000 $ 3,723,000 $ 3,814,000 $ 3,889,000 $ 3,959,000 $ 4,022,000 Other Liabilities............. 192,000 144,000 254,000 219,000 150,000 189,000 161,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 3,657,000 $ 3,906,000 $ 3,977,000 $ 4,033,000 4,049,000 $ 4,148,000 $ 4,183,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit...... $(2,032,000) $(2,098,000) $(2,122,000) $(2,179,000) $(2,148,000) $(2,168,000) $(2,197,000) =========== =========== =========== =========== =========== =========== ===========
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................ $ 804,000 $ 800,000 $ 1,077,000 $ 1,008,000 $ 964,000 $ 954,000 $ 930,000 Other Income.................. 49,000 30,000 43,000 38,000 45,000 33,000 33,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue......... $ 853,000 $ 830,000 $ 1,120,000 $ 1,046,000 $ 1,009,000 $ 987,000 $ 963,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............ $ 337,000 $ 318,000 $ 507,000 506,000 $ 420,000 $ 390,000 $ 454,000 General & Administrative...... 32,000 29,000 37,000 39,000 38,000 45,000 46,000 Depreciation.................. 73,000 73,000 98,000 92,000 96,000 83,000 223,000 Interest Expense.............. 252,000 258,000 336,000 350,000 356,000 363,000 358,000 Property Taxes................ 69,000 69,000 88,000 58,000 79,000 78,000 78,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses........ $ 763,000 $ 747,000 $ 1,066,000 $ 1,075,000 $ 989,000 $ 959,000 $ 1,169,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............. $ 90,000 $ 83,000 $ 54,000 (29,000) $ 20,000 $ 28,000 $ (206,000) =========== =========== =========== =========== =========== =========== =========== Net Income (Loss) per limited partnership unit............ $ 3,564.00 $ 3,286.80 $ 2,138.40 $ (1,148.40) $ 792.00 $ 1,108.80 $ (8,157.60) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............ $ -- $ -- $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== =========== =========== ===========
S-49 1893 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $90,000 for the nine months ended September 30, 1998, compared to $83,000 for the nine months ended September 30, 1997. The increase in net income of $7,000 was the result of an increase in revenues, partially off-set by an increase in operating and other expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $853,000 for the nine months ended September 30, 1998, compared to $830,000 for the nine months ended September 30, 1997, an increase of $23,000, or 2.8%. The Partnership increased rental rates by an average of 2.8%; however, occupancy decreased 1.7% to 95.3%. The increase in Other Income of $19,000 was due primarily to higher lease cancellation fees and interest income. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $337,000 for the nine months ended September 30, 1998, compared to $318,000 for the nine months ended September 30, 1997, an increase of $19,000, due primarily to higher advertising costs and increases in maintenance expenses. Advertising increased $6,000 as management tried to increase occupancy. Maintenance costs increased $15,000 as the Partnership incurred landscaping and interior painting projects. Partnership Property management expenses totaled $42,000 for both periods. INTEREST EXPENSE Interest expense decreased $6,000 to $252,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This decrease is the result of a lower outstanding mortgage balance due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $55,874 for the year ended December 31, 1997, compared to a net loss of $29,605 for the year ended December 31, 1996. The increase in net income of $85,479, or 288% was primarily the result of increasing rental revenue while maintaining stable operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,120,563 for the year ended December 31, 1997, compared to $1,045,905 for the year ended December 31, 1996, an increase of $74,658, or 7.1%. This increase is due to an increase in rental rates of approximately 5% and occupancy rates of approximately 9%. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $506,823 for the year ended December 31, 1997, compared to $506,255 for the year ended December 31, 1996, an S-50 1894 increase of $568 or 0.1%. Management expenses totaled $55,922 for the year ended December 31, 1997, compared to $51,864 for the year ended December 31, 1996, an increase of $4,058, or 7.8%. The increase resulted from an increase in rental revenues as management fees are based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $36,549 for the year ended December 31, 1997 compared to $38,664 for the year ended December 31, 1996, a decrease of $2,115 or 5.5%. The decrease was primarily due to decreased training and travel expenses and decreased legal fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $335,895 for the year ended December 31, 1997, compared to $350,280 for the year ended December 31, 1996, a decrease of $14,385, or 4.1%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized a net loss of $29,605 for the year ended December 31, 1996, compared to a net income of $19,691 for the year ended December 31, 1995. The decrease in net income of $49,296, or 250%, was primarily the result of an increase in operating expenses, offset by an increase in rental revenue. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,045,905 for the year ended December 31, 1996, compared to $1,009,083 for the year ended December 31, 1995, an increase of $36,822, or 3.6%. This increase is due to an increase in rental rates of approximately 5% and occupancy rates of approximately 5%, offset by decreases in lease cancellation fees of $6,000. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $506,255 for the year ended December 31, 1996, compared to $420,214 for the year ended December 31, 1995, an increase of $86,041 or 20.5%. The increase in expenses is due primarily to utility expenses caused by a hard winter and an increase in water rates, as these two expenses increased by $11,000 and $5,000, respectively. Additionally, maintenance expense increased, due to the hiring of a new employee, by $10,000. Further increases resulted from major landscaping of $3,000, contract exterminating of $2,000, contract cleaning of $4,000, contract yards and grounds of $2,000, plumbing supplies of $6,000, interior improvements of $9,000, exterior building improvements of $7,000, exterior improvements of $6,000, parking lot repairs of $14,000, and contract painting interior of $6,000. Management expenses totaled $51,864 for the year ended December 31, 1996, compared to $50,789 for the year ended December 31, 1995, an increase of $1,075, or 2.1%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $38,664 for the year ended December 31, 1996 compared to $37,672 for the year ended December 31, 1995, an increase of $992 or 2.6%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $350,280 for the year ended December 31, 1996, compared to $356,345 for the year ended December 31, 1995, a decrease of S-51 1895 $6,065, or 1.7%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $17,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $158,000, was $3,823,000. The mortgages require monthly payments of approximately $34,448 until November 2002. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-52 1896 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 25 units of your partnership (up to 6.25 units) for consideration per unit of (i) 1,453.00 Preferred OP Units, (ii) 939 Common OP Units, or (iii) $36,322 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-53 1897 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-54 1898 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-55 1899 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-56 1900 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-57 1901 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-58 1902 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-59 1903 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-60 1904 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-61 1905 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-62 1906 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-63 1907 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-64 1908 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-65 1909 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-66 1910 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-67 1911 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-68 1912 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-69 1913 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Distributable Cash (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2026. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating develop, operate, lease, manage and hold for Partnership is to conduct any business that investment and production of income with may be lawfully conducted by a limited your partnership's property. Subject to partnership organized pursuant to the restrictions contained in your partnership's Delaware Revised Uniform Limited Part- agreement of limited partnership, your nership Act (as amended from time to time, partnership may perform all act necessary, or any successor to such statute) (the advisable or convenient to the business of "Delaware Limited Partnership Act"), your partnership including borrowing money provided that such business is to be and creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-70 1914 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 25 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners, except that the admission of the Unitholders is required in connection with limited partners other than those who the admission of any additional OP purchase the 25 units and substituted Unitholder. See "Description of OP limited partners must be effected by an Units -- Management by the AIMCO GP" in the amendment to your partnership's agreement of accompanying Prospectus. Subject to Delaware limited partnership executed and acknowledge law, any additional partnership interests by the general partner and all the limited may be issued in one or more classes, or one partners. or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its contract with the general partner or its subsidiaries or other persons in which it affiliates for various goods and has an equity investment,
S-71 1915 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP services as specified in your partnership's and such persons may borrow funds from the agreement of limited partnership. In AIMCO Operating Partnership, on terms and addition, the general partner is authorized conditions established in the sole and to lend money to your partnership upon the absolute discretion of the general partner. right of the general partner to be reim- To the extent consistent with the business bursed for sums expended by the general purpose of the AIMCO Operating Partnership partner in the conduct of the business of and the permitted activities of the general your partnership if such expenditure are partner, the AIMCO Operating Partnership may authorized and not otherwise restricted transfer assets to joint ventures, limited under the terms of your partnership's liability companies, partnerships, agreement of limited partnership; provided corporations, business trusts or other that interest on such loans will accrue at business entities in which it is or thereby the greater of 2% over the prime interest becomes a participant upon such terms and rate charged by the Third National Bank in subject to such conditions consistent with Nashville, adjusted monthly or the general the AIMCO Operating Partnership Agreement partner's actual interest cost in borrowing and applicable law as the general partner, such amounts. The principal and interest in its sole and absolute discretion, with respect to such loans will be fully believes to be advisable. Except as paid prior to the distributions of funds to expressly permitted by the AIMCO Operating the partners unless such loans contain a Partnership Agreement, neither the general specific provision to the contrary. partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to obtain a loan of up to contains no restrictions on borrowings, and $1,650,000 from an institutional lender and the general partner has full power and to execute, acknowledge and deliver such authority to borrow money on behalf of the documents and instruments, including AIMCO Operating Partnership. The AIMCO promissory notes, collection agreements, Operating Partnership has credit agreements deeds to secure debts, deeds of trust, that restrict, among other things, its mortgages, assignments and other documents ability to incur indebtedness. and security instruments as may be necessary or desirable in connection with obtaining such loan and also borrow money in the ordinary course of business and as security therefor to mortgage all or any part of the real property of your partnership. The partnership may also offer and sell up to $500,000 of mortgage-backed bonds.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner to written demand with a statement of the inspect the register containing the names purpose of such demand and at such OP and addresses of all limited partners at all Unitholder's own expense, to obtain a reasonable times at the principal office of current list of the name and last known your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and the exclusive right to manage and control affairs of the AIMCO Operating Partnership the partner- are vested in
S-72 1916 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's business, to bind your partnership by AIMCO-GP, Inc., which is the general its sole signature and take any action it partner. No OP Unitholder has any right to deems necessary or advisable in connection participate in or exercise control or with the business of your partnership. No management power over the business and limited partner has any right or power to affairs of the AIMCO Operating Partner- take part in any way in the control of your ship. The OP Unitholders have the right to partnership business except as may be vote on certain matters described under expressly provided in your partnership's "Comparison of Your Units and AIMCO OP agreement of limited partnership or by Units -- Voting Rights" below. The general applicable statutes. partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership will not incur any Agreement, the general partner is not liable liability to your partnership or any limited to the AIMCO Operating Partnership for partner for any mistakes or errors in judg- losses sustained, liabilities incurred or ment or for any acts or omission believed by benefits not derived as a result of errors the general partner in good faith to be in judgment or mistakes of fact or law of within the scope of authority conferred upon any act or omission if the general partner it by your partnership agreement. In acted in good faith. The AIMCO Operating addition, your partnership will, to the Partnership Agreement provides for extent permitted by law, indemnify and save indemnification of AIMCO, or any director or harmless the general partner against and officer of AIMCO (in its capacity as the from any personal loss, liability (including previous general partner of the AIMCO attorneys' fees) or damage incurred by it as Operating Partnership), the general partner, the result of any act or omission in its any officer or director of general partner capacity as general partner unless or the AIMCO Operating Partner-
S-73 1917 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP such loss, liability or damage results from ship and such other persons as the general gross negligence or willful misconduct by partner may designate from and against all the general partner. losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner following the business and affairs of the AIMCO notice and a failure to cure the injury to Operating Partnership. The general partner your partnership within a reasonable time may not be removed as general partner of the for cause upon the vote of the limited AIMCO Operating Partnership by the OP partners holding 51% of the then outstanding Unitholders with or without cause. Under the units. The general partner may withdraw AIMCO Operating Partnership Agreement, the voluntarily from your partnership with the general partner may, in its sole discretion, consent of holders of 51% of the then prevent a transferee of an OP Unit from outstanding units. A substitute general becoming a substituted limited partner partner may be elected upon the affirmative pursuant to the AIMCO Operating Partnership vote of limited partners owning more than Agreement. The general partner may exercise 50% of the units. A limited partner may not this right of approval to deter, delay or transfer his interests without the consent hamper attempts by persons to acquire a of the general partner which may be withheld controlling interest in the AIMCO Operating at the sole discretion of the general Partnership. Additionally, the AIMCO partner. Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the limited set forth in the AIMCO Operating Partnership partners owning more than 50% of the units Agreement, whereby the general partner may, and the general partner. Any amendment which without the consent of the OP Unitholders, alters a limited partner's interest in the amend the AIMCO Operating Partnership capital profits, Distributable Cash of Agreement, amendments to
S-74 1918 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP your partnership must be approved by the the AIMCO Operating Partnership Agreement affected partner. Such proposed amendments require the consent of the holders of a may be presented to the limited partners majority of the outstanding Common OP Units, upon the motion of the general partner or excluding AIMCO and certain other limited receipt of a written request executed by exclusions (a "Majority in Interest"). limited partners owning at least 25% of the Amendments to the AIMCO Operating units then outstanding. Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives an annual fee of 1% of the gross its capacity as general partner of the AIMCO collected income from your partnership's Operating Partnership. In addition, the property. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the liability of each gross negligence, no OP Unitholder has of the limited partners for his share of the personal liability for the AIMCO Operating losses and debts of your partnership is Partnership's debts and obligations, and limited to the total capital contribution of liability of the OP Unitholders for the such limited partners (subject to the terms AIMCO Operating Partnership's debts and and conditions pursuant to which such obligations is generally limited to the capital contribution is to be paid) plus, to amount of their investment in the AIMCO the extent that such limited partner Operating Partnership. However, the rightfully has received the return of such limitations on the liability of limited capital contribution, any sum, not in excess partners for the obligations of a limited of such return, necessary to discharge partnership have not been clearly liabilities of your partnership to all established in some states. If it were creditors who extended credit before such determined that the AIMCO Operating Part- return; provided that the liability with nership had been conducting business in any respect to rightfully returned capital state without compliance with the applicable contribution is limited to one year from the limited partnership statute, or that the date of such return. right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agree-
S-75 1919 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ment constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must devote such of its time and that of its generally requires a general partner of a employees to your partnership business as Delaware limited partnership to adhere to may be reasonably necessary to carry on and fiduciary duty standards under which it owes conduct your partnership's business. The its limited partners the highest duties of general partner must use its best effort to good faith, fairness and loyalty and which do all other things and perform such other generally prohibit such general partner from duties as may be reasonably necessary to the taking any action or engaging in any successful operation of your partnership and transaction as to which it has a conflict of the general partner must act as a fiduciary interest. The AIMCO Operating Partnership with respect to the assets and business of Agreement expressly authorizes the general your partnership. The general partner and partner to enter into, on behalf of the its affiliates may engage in or possess an AIMCO Operating Partnership, a right of interest in other business ventures of every first opportunity arrangement and other nature and description, including, without conflict avoidance agreements with various limitation, real estate business ventures, affiliates of the AIMCO Operating whether or not such other enterprise is in Partnership and the general partner, on such competition with any of the activities of terms as the general partner, in its sole your partnership. and absolute discretion, believes are advisable. The AIMCO Operating Partnership In general, your partnership's agreement of Agreement expressly limits the liability of limited partnership and the AIMCO Operating the general partner by providing that the Partnership Agreement have limitations on general partner, and its officers and the liability of the general partner but directors will not be liable or accountable such limitations differ and provide more in damages to the AIMCO Operating protection for the general partner of the Partnership, the limited partners or as- AIMCO Operating Partnership. signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that consti-
S-76 1920 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refi-
S-77 1921 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agreement Units. See "Description of Operating Partnership of limited partnership with OP Units" in the accompany- Agreement and certain the approval of the general ing Prospectus. So long as transactions such as the partner, subject to certain any Preferred OP Units are institution of bankruptcy exceptions; terminate your outstanding, in addition to proceedings, an assignment partnership with the ap- any other vote or consent of for the benefit of creditors proval of the general partners required by law or and certain transfers by the partner; remove or elect a by the AIMCO Operating general partner of its general partner and approve Partnership Agreement, the interest in the AIMCO or disapprove the sale of affirmative vote or consent Operating Partnership or the all or a material portion of of holders of at least 50% admission of a successor your partnership's property. of the outstanding Preferred general partner. OP Units will be necessary The general partner may for effecting any amendment Under the AIMCO Operating cause the dissolution of of any of the provisions of Partnership Agreement, the your partnership by the Partnership Unit general partner has the retiring. Your partnership Designation of the Preferred power to effect the may then be reformed by the OP Units that materially and acquisition, sale, transfer, limited partners holding 51% adversely affects the rights exchange or other of the units then or preferences of the disposition of any assets of outstanding within ninety holders of the Preferred OP the AIMCO Operating days following such retire- Units. The creation or Partnership (including, but ment. In such an event, your issuance of any class or not limited to, the exercise partnership will dissolve series of partnership units, or grant of any conversion, and all of its assets and including, without option, privilege or liability will be con- limitation, any partner- subscription right or any tributed to a new ship units that may have other right available in partnership and all parties rights senior or superior to connection with any assets of your partnership will the Preferred OP Units, at any time held by the become parties to the new shall not be deemed to AIMCO Operating Partnership) partnership. materially adversely affect or the merger, the rights or preferences of consolidation, In general, you have greater the holders of Preferred OP reorganization or other voting rights in your Units. With respect to the combination of the AIMCO partnership than you will exercise of the above Operating Partnership with have as an OP Unitholder. OP described voting rights, or into another entity, all Unitholders can not remove each Preferred OP Units without the consent of the the general partner of the shall have one (1) vote per OP Unitholders. AIMCO Operating Partnership. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an
S-78 1922 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Distributable at the rate of $0.50 per or such portion as the Cash are to be made Preferred OP Unit; provided, general partner may in its quarterly on or about however, that at any time sole and absolute discretion January 15, April 15, July and from time to time on or determine, of Available Cash 15 and October 15. The dis- after the fifth anniversary (as defined in the AIMCO tributions payable to the of the issue date of the Operating Partnership partners are not fixed in Preferred OP Units, the Agreement) generated by the amount and depend upon the AIMCO Operating Partnership AIMCO Operating Partnership operating results and net may adjust the annual during such quarter to the sales or refinancing pro- distribution rate on the general partner, the special ceeds available from the Preferred OP Units to the limited partner and the disposition of your lower of (i) 2.00% plus the holders of Common OP Units partnership's assets. annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective most recently issued AIMCO
S-79 1923 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS non-convertible preferred interests in the AIMCO stock which ranks on a Operating Partnership on parity with its Class H such record date. Holders of Cumulative Preferred Stock. any other Preferred OP Units Such distributions will be issued in the future may cumulative from the date of have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-80 1924 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such person will and the Preferred OP Units Operating Partnership become a substitute limited are not listed on any Agreement restricts the partner if: (1) a written securities exchange. The transferability of the OP assignment has been duly Preferred OP Units are Units. Until the expiration executed and acknowledged by subject to restrictions on of one year from the date on the assignor and assignee transfer as set forth in the which an OP Unitholder and delivered to the general AIMCO Operating Partnership acquired OP Units, subject partners, (2) the approval Agreement. to certain exceptions, such of the general partner which OP Unitholder may not may be withheld in the sole Pursuant to the AIMCO transfer all or any por- discretion and which will be Operating Partnership tion of its OP Units to any withheld if the general Agreement, until the transferee without the partner reasonably believes expiration of one year from consent of the general that the transfer violates the date on which a holder partner, which consent may applicable securities law or of Preferred OP Units be withheld in its sole and result in adverse tax acquired Preferred OP Units, absolute discretion. After consequences, including the subject to certain the expiration of one year, termination of your exceptions, such holder of such OP Unitholder has the partnership for tax Preferred OP Units may not right to transfer all or any purposes, (3) the assignee transfer all or any portion portion of its OP Units to has agreement to bound by of its Preferred OP Units to any person, subject to the all of the terms of your any transferee without the satisfaction of certain con- partnership's agreement of consent of the general ditions specified in the limited partnership and partner, which consent may AIMCO Operating Partnership absolute discretion of the be withheld in its sole and Agreement, including the general partner has been absolute discretion. After general partner's right of granted, (4) the assignee the expiration of one year, first refusal. See represents he is at least 18 such holders of Preferred OP "Description of OP Units -- years of age, is a citizen Units has the right to Transfers and Withdrawals" and resident of the U.S., transfer all or any portion in the accompanying has sufficient financial of its Preferred OP Units to Prospectus. resources to maintain the any person, subject to the interest acquired and that satisfaction of certain After the first anniversary he is not acquiring the conditions specified in the of becoming a holder of interest with a view to AIMCO Operating Partner- Common OP Units, an OP resell the interest and (5) ship Agreement, including Unitholder has the right, the assignor and assignee the general partner's right subject to the terms and have complied with such of first refusal. conditions of the AIMCO other conditions as set Operating Partnership forth in your partnership's After a one-year holding Agreement, to require the agreement of limited period, a holder may redeem AIMCO Operating Partnership partnership. Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held There are no redemption therefor, at the AIMCO Oper- by such party in exchange rights associated with your ating Partnership's option, for a cash amount based on units. (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-81 1925 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-82 1926 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-83 1927 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-84 1928 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-85 1929 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-86 1930 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-87 1931 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-88 1932 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-89 1933 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-90 1934 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-91 1935 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $27,513 in 1996, $29,242 in 1997 and $31,830 in 1998. The property manager received management fees of $51,864 in 1996, $55,922 in 1997 and $57,240 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-92 1936 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $227,013 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-93 1937 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-94 1938 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 1939 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 17,000 Receivables and Deposits.................................... 24,000 Restricted Escrows.......................................... 244,000 Other Assets................................................ 58,000 Investment Property: Land...................................................... $ 340,000 Building and related personal property.................... 4,589,000 ----------- 4,929,000 ----------- Less: Accumulated depreciation............................ (3,447,000) 1,482,000 ----------- ----------- Total Assets...................................... $ 1,825,000 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts Payable............................................ $ 17,000 Other Accrued Liabilities................................... 82,000 Property Taxes Payable...................................... 69,000 Tenant Security Deposits.................................... 24,000 Notes Payable............................................... 3,665,000 Partners' Deficit................................. (2,032,000) ----------- Total Liabilities and Partners' Deficit........... $ 1,825,000 ===========
See Accompanying Notes to Financial Statements. F-2 1940 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $804,000 $800,000 Other Income.............................................. 49,000 30,000 -------- -------- Total Revenues.................................... 853,000 830,000 Expenses: Operating Expenses........................................ 337,000 318,000 General and Administrative Expenses....................... 32,000 29,000 Depreciation Expense...................................... 73,000 73,000 Interest Expense.......................................... 252,000 258,000 Property Tax Expense...................................... 69,000 69,000 -------- -------- Total Expenses.................................... 763,000 747,000 Net Income........................................ $ 90,000 $ 83,000 ======== ========
See Accompanying Notes to Financial Statements. F-3 1941 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 --------- -------- Operating activities: Net income (loss)......................................... $ 90,000 $ 83,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and Amortization............................. 105,000 105,000 Changes in accounts: Receivables and deposits and other assets.............. 73,000 23,000 Accounts Payable and accrued expenses.................. (62,000) (75,000) --------- -------- Net cash provided by (used in) operating activities...................................... 206,000 134,000 --------- -------- Investing Activities: Property improvements and replacements.................... (43,000) (33,000) Net (increase)/decrease in restricted escrows............. (84,000) (39,000) --------- -------- Net cash provided by (used in) investing activities...................................... (127,000) (72,000) --------- -------- Financing Activities: Payments on mortgage...................................... (77,000) (71,000) --------- -------- Net cash provided by (used in) financing activities...................................... (77,000) (71,000) --------- -------- Net increase (decrease) in cash and cash equivalents...... 2,000 (9,000) Cash and cash equivalents at beginning of period.......... 15,000 18,000 --------- -------- Cash and cash equivalents at end of period................ $ 17,000 $ 9,000 ========= ========
See Accompanying Notes to Condensed Financial Statements F-4 1942 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Georgetown of Columbus Associates, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 1943 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 1944 INDEPENDENT AUDITORS' REPORT General Partners Georgetown of Columbus Associates, Limited: We have audited the accompanying balance sheets of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 26, 1998 F-7 1945 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 15,001 $ 17,946 Receivables and deposits.................................... 96,733 67,832 Restricted escrows (Note B)................................. 159,731 153,166 Other assets................................................ 71,576 76,344 Investment properties (Note C): Land...................................................... 340,190 340,190 Buildings and related personal property................... 4,545,765 4,475,007 ----------- ----------- 4,885,955 4,815,197 Less accumulated depreciation............................. (3,373,939) (3,276,242) ----------- ----------- 1,512,016 1,538,955 ----------- ----------- $ 1,855,057 $ 1,854,243 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable (Note D)................................. $ 111,398 $ 75,737 Tenant security deposit liabilities....................... 29,758 28,778 Accrued taxes............................................. 87,386 87,458 Other liabilities......................................... 25,227 26,773 Mortgage notes payable (Note C)........................... 3,723,480 3,813,563 Partners' deficit........................................... (2,122,192) (2,178,066) ----------- ----------- $ 1,855,057 $ 1,854,243 =========== ===========
See Accompanying Notes to Financial Statements F-8 1946 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,077,470 $ 1,007,702 Other income.............................................. 43,093 38,203 ----------- ----------- Total revenues.................................... 1,120,563 1,045,905 ----------- ----------- Expenses: Operating (Note D)........................................ 506,823 506,255 General and administrative (Note D)....................... 36,549 38,664 Depreciation.............................................. 97,697 92,069 Interest.................................................. 335,895 350,280 Property taxes............................................ 87,725 88,242 ----------- ----------- Total expenses.................................... 1,064,689 1,075,510 ----------- ----------- Net income (loss)........................................... 55,874 (29,605) Partners' deficit at beginning of year...................... (2,178,066) (2,148,461) ----------- ----------- Partners' deficit at end of year............................ $(2,122,192) $(2,178,066) =========== ===========
See Accompanying Notes to Financial Statements F-9 1947 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 55,874 $ (29,605) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 97,697 92,069 Amortization of discounts, loan costs and other deferred costs........................................ 35,322 41,477 Change in accounts: Receivables and deposits............................. (28,901) 5,306 Other assets......................................... (8,187) -- Accounts payable..................................... 35,661 48,229 Tenant security deposit liabilities.................. 980 (2,172) Accrued taxes........................................ (72) 9,681 Other liabilities.................................... (1,546) 3,061 --------- --------- Net cash provided by operating activities......... 186,828 168,046 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (70,758) (77,189) Deposits to restricted escrows............................ (6,565) (6,505) Receipts from restricted escrows.......................... -- 7,617 --------- --------- Net cash used in investing activities............. (77,323) (76,077) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (112,450) (104,245) --------- --------- Net cash used in financing activities............. (112,450) (104,245) --------- --------- Net decrease in cash and cash equivalents................... (2,945) (12,276) Cash and cash equivalents at beginning of year.............. 17,946 30,222 --------- --------- Cash and cash equivalents at end of year.................... $ 15,001 $ 17,946 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 300,929 $ 309,134 ========= =========
See Accompanying Notes to Financial Statements F-10 1948 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Georgetown of Columbus Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 10 to 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $63,389 and $76,344, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 1949 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $159,731 $153,166 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $33,614, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,766,261 $3,878,711 Second mortgage note payable in interest only monthly installments of $834, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 131,718 131,718 ---------- ---------- Principal balances at year end.............................. 3,897,979 4,010,429 Less unamortized discount................................... (174,499) (196,866) ---------- ---------- $3,723,480 $3,813,563 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 121,300 1999..................................................... 130,846 2000..................................................... 141,141 2001..................................................... 152,253 2002..................................................... 3,352,439 ---------- $3,897,979 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In F-12 1950 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions and balances with the Managing General Partner and its affiliates for the years ended December 31, 1997 and 1996 are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $55,922 $51,864 Partnership administration fee.............................. $12,510 $10,020 Reimbursement for services of affiliates.................... $16,582 $16,703 Reimbursement for construction oversight costs.............. $ 150 $ 790 Payable to Insignia Residential Group....................... $36,602 $ 7,510
F-13 1951 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 1952 INDEPENDENT AUDITORS' REPORT General Partners Georgetown of Columbus Associates, Limited: We have audited the accompanying balance sheets of Georgetown of Columbus Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgetown of Columbus Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 6, 1997 F-15 1953 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 17,946 $ 30,222 Restricted -- tenant security deposits.................... 28,778 30,538 Accounts receivable......................................... 1,172 192 Escrow for taxes............................................ 37,882 42,408 Restricted escrows (Note B)................................. 153,166 154,278 Other assets................................................ 76,344 89,248 Investment properties (Note C): Land...................................................... 340,190 340,190 Buildings and related personal property................... 4,475,007 4,397,818 ----------- ----------- 4,815,197 4,738,008 Less accumulated depreciation............................. (3,276,242) (3,184,173) ----------- ----------- 1,538,955 1,553,835 ----------- ----------- $ 1,854,243 $ 1,900,721 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 75,737 $ 27,508 Tenant security deposits.................................. 28,778 30,950 Accrued taxes............................................. 87,458 77,777 Other liabilities......................................... 26,773 23,712 Mortgage notes payable (Note C)........................... 3,813,563 3,889,235 Partners' deficit........................................... (2,178,066) (2,148,461) ----------- ----------- $ 1,854,243 $ 1,900,721 =========== ===========
See Accompanying Notes to Financial Statements F-16 1954 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,007,702 $ 964,312 Other income.............................................. 38,203 44,771 ----------- ----------- Total revenues.................................... 1,045,905 1,009,083 ----------- ----------- Expenses: Operating (Note D)........................................ 357,814 325,836 General and administrative (Note D)....................... 38,664 37,672 Maintenance............................................... 148,441 94,378 Depreciation.............................................. 92,069 96,487 Interest.................................................. 350,280 356,345 Property taxes............................................ 88,242 78,674 ----------- ----------- Total expenses.................................... 1,075,510 989,392 ----------- ----------- Net (loss) income........................................... (29,605) 19,691 Partners' deficit at beginning of year...................... (2,148,461) (2,168,152) ----------- ----------- Partners' deficit at end of year............................ $(2,178,066) $(2,148,461) =========== ===========
See Accompanying Notes to Financial Statements F-17 1955 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ----------- ---------- Cash flows from operating activities: Net (loss) income......................................... $ (29,605) $ 19,691 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation........................................... 92,069 96,487 Amortization of discounts, loan costs and other deferred costs........................................ 41,477 50,172 Change in accounts: Restricted cash...................................... 1,760 690 Accounts receivable.................................. (980) (192) Escrow for taxes..................................... 4,526 1,657 Accounts payable..................................... 48,229 20,903 Tenant security deposit liabilities.................. (2,172) (2,985) Accrued taxes........................................ 9,681 1,000 Other liabilities.................................... 3,061 (47,714) --------- -------- Net cash provided by operating activities......... 168,046 139,709 --------- -------- Cash flows from investing activities: Property improvements and replacements.................... (77,189) (57,993) Deposits to restricted escrows............................ (6,505) (31,974) Receipts from restricted escrows.......................... 7,617 11,093 --------- -------- Net cash used in investing activities............. (76,077) (78,874) --------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (104,245) (96,639) --------- -------- Net cash used in financing activities............. (104,245) (96,639) --------- -------- Net decrease in cash and cash equivalents................... (12,276) (35,804) Cash and cash equivalents at beginning of year.............. 30,222 66,026 --------- -------- Cash and cash equivalents at end of year.................... $ 17,946 $ 30,222 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 309,134 $316,740 ========= ========
See Accompanying Notes to Financial Statements F-18 1956 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Georgetown of Columbus Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 10 to 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. Deferred loan costs are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 1957 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $153,166 $154,278 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $33,614, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,878,711 $3,982,956 Second mortgage note payable in interest only monthly installments of $834, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 131,718 131,718 ---------- ---------- Principal balances at year end.............................. 4,010,429 4,114,674 Less unamortized discount................................... (196,866) (225,439) ---------- ---------- $3,813,563.. $3,889,235 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 112,449 1998..................................................... 121,300 1999..................................................... 130,846 2000..................................................... 141,141 2001..................................................... 152,253 Thereafter............................................... 3,352,440 ---------- $4,010,429 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. F-20 1958 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Transactions with the Managing General Partner and its affiliates for the years ended December 31, 1996 and 1995 are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $51,864 $50,789 Partnership administration fee.............................. $10,020 $10,096 Reimbursement for services of affiliates.................... $16,703 $15,840 Reimbursement for construction oversight costs.............. $ 790 $ --
F-21 1959 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 1960 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 1961 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 1962 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 1963 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 1964 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 1965 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 1966 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 1967 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 1968 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 1969 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 1970 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 1971 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 1972 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 1973 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 1974 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 1975 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 1976 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 1977 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 1978 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 1979 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 1980 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 1981 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 1982 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 1983 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 1984 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 1985 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 1986
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 1987 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 1988
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 1989 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 1990 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 1991 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 1992
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 1993 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 1994 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 1995 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 1996
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 1997 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 1998 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 1999 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2000 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2001 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2002 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2003 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2004 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2005 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2006 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2007 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2008 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2009 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Georgetown of Columbus Associates Ltd Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Georgetown of Columbus Associates Ltd (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $36,322 in cash, or 939 Common OP Units of the Purchaser, or 1,453 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 2010 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2011 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2012 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2013
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2014
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2015
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2016
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2017 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2018 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of La Colina Partners, Ltd. in exchange for your choice of: 1,794.50 of our 8.0% Class Two Partnership Preferred Units; 1,159.45 of our Partnership Common Units; or $44,859 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $44,859 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2019 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of La Colina Partners, Ltd.............................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value........ S-38 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58
i 2020
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2021 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Angeles Properties, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,500,000, less approximately $286,879 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 2022 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 2023 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2023 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $3,589 per year on the number of Preferred OP Units, or distributions of $2,898.63 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 2024 partnership's units. During 1998, your partnership paid cash distributions of $9,615.38 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 2025 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $4,542,077 of balloon payments due on its mortgage debt in October 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. S-5 2026 On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October 2003 and require balloon payments of $4,542,077. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 2027 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $9,615.38 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,589 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $9,615.38 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,898.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 2028 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2029 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.83% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.13%, resulting in a final capitalization rate of 10.37%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 778,000 Capitalization rate......................................... 10.37% ----------- Gross valuation of partnership property..................... $ 7,500,000 Plus: Cash and cash equivalents............................. 522,593 Plus: Other partnership assets, net of security deposits.... 382,915 Less: Mortgage debt, including accrued interest............. (5,230,467) Less: Accounts payable and accrued expenses................. (17,930) Less: Other liabilities..................................... (305,094) ----------- Partnership valuation before taxes and certain costs........ 2,852,017 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (286,879) Less: Closing costs......................................... (187,500) ----------- Estimated net valuation of your partnership................. 2,377,638 Percentage of estimated net valuation allocated to holders of units.................................................. 98.11% ----------- Estimated net valuation of units............................ 2,332,669 Total number of units............................. 52.0 ----------- Estimated valuation per unit................................ 44,859 =========== Cash consideration per unit................................. $ 44,859 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $44,859 by the $25 liquidation preference of each Preferred OP Unit to get 1,794.50 Preferred OP Units per unit. S-9 2030 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $44,859 by a price of $38.69 to get 1,159.45 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 44,859 Partnership Preferred Units................................. $ 44,859 Partnership Common Units.................................... $ 44,859 Alternatives: Estimated liquidation proceeds............................ $ 44,859 Estimated going concern value............................. $ 40,192 Alternative going concern value(1)........................ $ 41,558 Net book value (deficit).................................. $(62,534)
- --------------- (1) Assumes sale of the property when balloon payments are due instead of refinancing the mortgages. S-10 2031 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. La Colina Partners, Ltd. is a California limited partnership which was formed on July 15, 1983 for the purpose of owning and operating a single apartment property located in Denton, Texas, known as "La Colina Ranch Apartments." La Colina Ranch Apartments consists of 264 units and was built in 1984. Your partnership has no employees. As of September 30, 1998, there were 52 units of limited partnership interest issued and outstanding, which were held of record by 51 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,548,000 of limited partnership units in 1983. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $9,615.38 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2023, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $4,977,766, payable to FNMA, which bears interest at the rate of 7.83%. The mortgage debt is due on October 15, 2003. Your partnership also has a second mortgage note outstanding of $163,710, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 2032 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,794.50 of our Class Two Partnership Preferred Units; - 1,159.45 of our Partnership Common Units; or - $44,859 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 52 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,794.50 Preferred OP Units, 1,159.45 Common OP Units, or $44,859 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 2033 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 2034 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $44,859 in cash, 1,794.50 Preferred OP Units or 1,159.45 Common OP Units. Both your units and the S-14 2035 OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $44,859. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner receives an annual management fee equal to the greater of 7.5% of net cash flow or $10,000, payable monthly, in addition to reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $32,447 for the fiscal year ended December 31, 1998. The property manager received management fees of $89,785 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $583,167 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 2036 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2037
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2038 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2039
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2040 SUMMARY FINANCIAL INFORMATION OF LA COLINA PARTNERS, LTD. The summary financial information of La Colina Partners Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for La Colina Partners Ltd. for the years ended December 31, 1997, 1996, 1995 and 1994 is based on historical information for which 1997 has been audited. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." LA COLINA PARTNERS, LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues................ $1,342,947 $1,288,813 $1,738,655 $1,681,643 $2,152,848 $1,561,608 $1,425,575 Net Income/(Loss)............. 129,322 30,019 103,295 (66,948) 524,401 (41,177) (747,133) Net Income (Loss) per limited partnership unit............ 2,462 572 1,967 (1,275) 9,984 (784) (14,224) Distributions per limited partnership unit............ 7 9 381 19 3,897 -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 729,107 $ 1,195,368 $ 522,599 $ 1,148,129 $ 1,002,202 $ 407,445 $ 314,284 Real Estate, Net of Accumulated Depreciation... 2,529,276 2,660,222 2,623,939 2,682,739 2,828,828 3,045,919 3,196,979 Total Assets................. 3,671,957 4,298,486 3,609,251 4,315,547 4,341,188 3,993,873 3,995,251 Notes Payable................ 5,105,645 5,166,607 5,132,338 5,747,001 5,796,963 5,841,983 5,901,227 General Partners' Capital/ (Deficit).................. (17,112) (18,939) (18,402) (19,235) (18,555) (21,752) (21,341) Limited Partners' Capital/ (Deficit).................. (1,694,107) (1,875,003) (1,821,786) (1,904,248) (1,836,980) (2,153,490) (2,112,724) Partners' Capital/(Deficit).......... (1,711,220) (1,893,942) (1,840,188) (1,923,483) (1,855,535) (2,175,242) (2,134,065) Total Distributions.......... 354 478 20,080 1,000 204,694 -- -- Book value per limited partnership unit........... (32,908) (36,422) (35,388) (36,990) (35,683) (41,832) (41,040) Net increase (decrease) in cash and cash equivalents................ 206,508 47,239 (625,530) 145,927 594,757 93,161 314,284 Net cash provided by operating activities....... 317,326 761,382 139,352 254,671 828,085 195,321 (812,789) Ratio of earnings to fixed charges.................... 1.40/1 1.08/1 1.20/1 0.87/1 2.01/1 0.93/1 -0.49/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO LA COLINA OPERATING PARTNERS, PARTNERSHIP LTD. ------------ ------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $ 3,589 $9,615 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $2,898.63 $9,615
S-20 2041 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 2042 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,500,000, less approximately $286,879 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 2043 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 2044 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2023 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 2045 is equivalent to distributions of $3,589 per year on the number of Preferred OP Units, or distributions of $2,898.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $9,615.38 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 2046 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $4,542,077 of balloon payments due on its mortgage debt in October 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 2047 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately 1.5% interest, consisting of a 0% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 2048 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 2049 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $30,019 for the nine months ended September 30, 1997, to $129,322 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on October 15, 2003 and require balloon payments totaling $4,542,077. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2003 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing of your partnership's property; making an offer of only cash for your units; making an offer of only S-29 2050 Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's assets could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 2051 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $9,615.38 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,589 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $9,615.38 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,898.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 2052 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.83% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.13%, resulting in a final capitalization rate of 10.37%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 2053 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value..... $778,000 10.37% $7,500,000
- --------------- (1) The total net operating income is equal to total revenues of $1,672,218, less total expenses of $815,518 and recurring replacement costs of $79,200. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,377,638. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 778,000 Capitalization rate......................................... 10.37% ----------- Gross valuation of partnership properties................... 7,500,000 Plus: Cash and cash equivalents............................. 522,593 Plus: Other partnership assets, net of security deposits.... 382,915 Less: Mortgage debt, including accrued interest............. (5,230,467) Less: Accounts payable and accrued expenses................. (17,930) Less: Other liabilities..................................... (305,094) ----------- Partnership valuation before taxes and certain costs........ 2,852,017 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (286,879) Less: Closing costs......................................... (187,500) ----------- Estimated net valuation of your partnership................. 2,377,638 Percentage of estimated net valuation allocated to holders of units.................................................. 98.11% ----------- Estimated net valuation of units............................ 2,332,669 Total number of units............................. 52.0 ----------- Estimated valuation per unit................................ 44,859 =========== Cash consideration per unit................................. 44,859 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $44,859 by the $25 liquidation preference of each Preferred OP Unit to get 1,794.50 Preferred OP Units per unit. S-33 2054 - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $44,859 by a price of $38.69 to get 1,159.45 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,377,638 or .42% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $30,019 for the nine months ended September 30, 1997 to $129,322 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. S-34 2055 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $44,859, based on a total estimated value of your partnership's property of $7,500,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,589 per year on the number of Preferred OP Units, or distributions of $2,898.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $9,615.38. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive S-35 2056 if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 2057 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2023, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 44,859 Partnership preferred units................................. 44,859 (1 Partnership common units.................................... 44,859 (1 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 44,859 Estimated going concern value............................. $ 40,192 Net book value (deficit).................................. $(62,534) Alternative going concern value........................... $ 41,558 (2
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 2058 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the property and the actual amounts for which the partnership's property or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $40,192 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in October, 2003. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $41,558 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $62,534 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. STANGER'S ESTIMATE OF NET ASSET VALUE, GOING CONCERN VALUE AND LIQUIDATION VALUE In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $44,261 per unit, going concern value of $38,021 per unit and liquidation value of $40,596 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- S-38 2059 Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(598), $(6,838) and $(4,263). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 98.11% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 2060 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $1,737,329 Operating Expenses.......................................... (836,405) Replacement Reserves -- Net................................. (41,975) Debt Service................................................ (477,024) Capital Expenditures........................................ (68,320) ---------- Net Cash Flow..................................... $ 313,605 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts S-40 2061 will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net S-41 2062 operating income capitalized at a capitalization rate of 10.37%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $286,879. Stanger observed that your partnership liquidation value of $2,377,638 was allocated 98.11% to the limited partners and divided by the total units outstanding of 52 to provide the liquidation value per unit of $44,859. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $778,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $39,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.87%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of approximately 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 52 to achieve management's estimate of going concern value of $40,192 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $44,859 per unit is equal to management's estimate of liquidation value, and reflects an 11.6% premium to management's estimate of going concern value of $40,192. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed S-42 2063 that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return of the portfolio derived from the discounted cash flow analysis, (12.75% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998, adjusted for a $400,000 cash distribution, which we advised Stanger would be made after September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $44,261, $38,021, and $40,596 representing premiums (discounts) to the offer price of (1.3)%, (15.2)% and (9.5)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are S-43 2064 consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 2065 YOUR PARTNERSHIP GENERAL La Colina Partners, Ltd., is a California limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in November 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 51 limited partners of your partnership and a total of 52 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 15, 1983 for the purpose of owning an apartment property located in Denton, Texas, known as "La Colina Ranch Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1983 and consists of 264 apartment units. There are 112 one-bedroom apartments and 152 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 95% in 1998, 92% in 1997 and 92% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $256,519 and are intended to be paid for out of cash flow or borrowings. Renovation items include electrical, stairwells, sidewalks, drives and parking lot, landscape and irrigation, and drainage Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $513 $500 $477 $445 $420
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $196,524 of $7,538,620 of assessed valuation with a current yearly tax rate of 2.61%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 2.74% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2023 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-45 2066 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 95% and $537, respectively, at December 31, 1998, compared to 92% and $513, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because of strong rental market. In addition, the general partner noted that it expects to spend approximately $286,879 for capital improvements at the property in 1999 to update the property's amenities, such as washer/dryer, microwaves, fireplace and patio/balcony. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $4,977,766, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due on October 2003. Your partnership also has a second mortgage note outstanding of $163,710, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to S-46 2067 lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,548,000 of limited partnership units in 1983 for $49,000 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2023, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Your partnership's agreement of limited partnership does not limit the liability of the general partners to your partnership or any limited partners for acts done in their capacity as general partner. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, the general partners of your partnership are indemnified for any loss or damage, including legal fees and expenses and amounts paid in settlement, incurred by such parties by reason of any act performed or omitted by such parties on behalf of your partnership or in furtherance of your partnership's interest, provided that the party sued will not be entitled to indemnification for losses sustained by reason of their gross negligence, willful misconduct or breach of fiduciary obligations. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 2068 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $49,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 $ 0 $0 $ 0 1994.................................. 0 0 0 0 1995.................................. 3,936 0 0 51,174 1996.................................. 19 0 0 250 1997.................................. 385 0 0 5,000 1998.................................. 7,731 2,000 0 100,500 ------- ------ -- -------- Total....................... $12,071 $2,000 $0 $156,924 ======= ====== == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.5% interest in your partnership, as general partner and no limited partnership units of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 2069 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $29,166 1995........................................................ 42,281 1996........................................................ 45,370 1997........................................................ 39,929 1998........................................................ 32,447
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $78,348 1996........................................................ 80,878 1997........................................................ 83,502 1998........................................................ 89,785
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 2070 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
LA COLINA PARTNERS, LTD. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents........... $ 729,107 $ 1,195,368 $ 522,599 $ 1,148,129 $ 1,002,202 $ 407,445 $ 314,284 Land & Building......... 5,772,398 5,691,678 5,708,625 5,558,406 5,500,644 5,597,351 5,554,435 Accumulated Depreciation.......... (3,243,122) (3,031,456) (3,084,686) (2,875,667) (2,671,816) (2,551,432) (2,357,456) Other Assets............ 413,574 442,896 462,713 484,979 510,158 540,509 483,988 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.... $ 3,671,957 $ 4,298,486 $ 3,609,251 $ 4,315,847 $ 4,341,188 $ 3,993,873 $ 3,995,251 =========== =========== =========== =========== =========== =========== =========== Notes Payable........... $ 5,105,645 $ 5,166,607 $ 5,152,338 $ 5,747,001 $ 5,796,983 $ 5,841,983 $ 5,901,227 Other Liabilities....... 277,532 1,025,821 297,101 492,329 399,740 327,132 228,089 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 5,383,177 $ 6,192,428 $ 5,449,439 $ 6,239,330 $ 6,196,723 $ 6,169,115 $ 6,129,316 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit........ $(1,711,220) $(1,893,942) $(1,840,188) $(1,923,483) $(1,855,535) $(2,175,242) $(2,134,065) =========== =========== =========== =========== =========== =========== ===========
LA COLINA PARTNERS, LTD. ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,258,151 $1,200,132 $1,624,251 $1,584,879 $1,511,792 $1,411,000 $1,330,511 Other Income................... 84,796 88,681 114,404 96,764 641,056 150,608 95,064 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $1,342,947 $1,288,813 $1,738,655 $1,681,643 $2,152,848 $1,561,608 $1,425,575 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 557,748 $ 553,465 $ 687,976 $ 799,570 $ 700,493 $ 645,316 $1,162,320 General & Administrative....... 21,593 24,902 39,066 53,865 48,702 60,789 162,802 Depreciation................... 158,434 155,788 209,019 203,851 200,725 193,976 190,243 Interest Expense............... 323,374 379,424 505,679 508,941 520,959 550,242 502,113 Property Taxes................. 152,476 145,215 193,620 182,364 157,568 152,462 155,230 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $1,213,625 $1,258,794 $1,635,360 $1,748,591 $1,628,447 $1,602,785 $2,172,708 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (loss) before extraordinary items.......... $ 129,322 $ 30,019 $ 103,295 $ (66,948) $ 524,401 $ (41,177) $ (747,133) Extraordinary Items............ -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (loss).............. $ 129,322 $ 30,019 $ 103,295 $ (66,948) $ 524,401 $ (41,177) $ (747,133) ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 2,462 $ 572 $ 1,967 $ (1,275) $ 9,984 $ (784) $ (14,224) ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ 7 $ 9 $ 381 $ 19 $ 3,897 $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
S-50 2071 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP LA COLINA COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Net Income Your partnership recognized net income of $129,322 for the nine months ended September 30, 1998, compared to $30,019 for the nine months ended September 30, 1997 an increase in net income of $99,303, or 331%. This increase was primarily the result of an increase in rental revenue offset by a decrease in total expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,342,947 for the nine months ended September 30, 1998, compared to $1,288,813 for the nine months ended September 30, 1997, an increase of $54,134 or 4.20%. The increase in revenues is due to the increase in rental rates of 5%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $579,341 for the nine months ended September 30, 1998, compared to $578,367 for the nine months ended September 30, 1997, an increase of $974 or .17%. This increase is due primarily to an increase in non-capitalizable exterior maintenance and landscaping. Management expenses totaled $66,344 for the nine months ended September 30, 1998, compared to $61,805 for the nine months ended September 30, 1997, an increase of $4,539 or 7.34%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $323,374 for the nine months ended September 30, 1998, compared to $379,424 for the nine months ended September 30, 1997, a decrease if $56,050, or 14.77%. The decrease was due to the partnership's note payable to Angeles Acceptance pool being retired in the third quarter of 1997 and the decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 Net Income Your partnership recognized net income of $103,295 for the year ended December 31, 1997, compared to a loss of $66,948 for the year ended December 31, 1996. The increase in net income of $170,243, or 254.29% was primarily the result of an increase in revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,738,655 for the year ended December 31, 1997, compared to $1,681,643 for the year December 31, 1996, an increase of $57,012, or 3.39%. The increase in revenues can be attributed to a 3% increase in rental rates, partially offset by a decrease in occupancy of 2%. Additionally, there was an increase of $7,000 in lease cancellation fees, and increase in laundry income, application fees, and late charges. S-51 2072 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $687,976 for the year ended December 31, 1997, compared to $799,570 for the year ended December 31, 1996, a decrease of $111,594 or 13.96%. The decrease is due to a $4,000 decrease in periodicals, $5,000 decrease in incentives, $4,000 decrease in salaries, $29,000 decrease in major landscaping, $56,000 decrease in water and sewer repairs, and a $25,000 decrease in parking lot repairs. Management expenses totaled $83,502 for the year ended December 31, 1997, compared to $80,878 for the year ended December 31, 1996, an increase of $2,624, or 3.24%. General and Administrative Expenses General and administrative expenses totaled $39,066 for the year ended December 31, 1997 compared to $53,865 for the year ended December 31, 1996, a decrease of $14,799 or 27.47%. The decrease is primarily due to a decrease in General Partner reimbursement fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $505,679 for the year ended December 31, 1997, compared to $508,941 for the year ended December 31, 1996, a decrease of $3,262, or 0.64%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 Net Income Your partnership recognized net loss of $66,948 for the year ended December 31, 1996, compared to net income of $524,401 for the year ended December 31, 1995. The decrease in net income of $591,349 or 112.77% was primarily the result of a decrease in other income and an increase in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,681,643 for the year ended December 31, 1996, compared to $2,152,848 for the year ended December 31, 1995, a decrease of $471,205, or 21.89%. The decrease is due to a large settlement of $544,116 related to an AMIT obligation recorded in income in 1995. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $799,570 for the year ended December 31, 1996, compared to $700,493 for the year ended December 31, 1995, an increase of $99,077 or 14.14%. Operating expenses increased due to major landscaping expenses of $29,000 of which there were none in the prior period. Additionally, contract painting increased $15,000, water rates increased $11,000 and exterior painting increased $44,000. Management expenses totaled $80,878 for the year ended December 31, 1996, compared to $78,348 for the year ended December 31, 1995, an increase of $2,530, or 3.23%. General and Administrative Expenses General and administrative expenses totaled $53,865 for the year ended December 31, 1996 compared to $48,702 for the year ended December 31, 1995, an increase of $5,163 or 10.60%. The increase is primarily due to an increase in various administrative expenses. S-52 2073 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $508,941 for the year ended December 31, 1996, compared to $520,959 for the year ended December 31, 1995, a decrease of $12,018, or 2.31%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Liquidity and Capital Resources As of September 30, 1998, your Partnership had $729,107 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $54,203, was $5,105,644. The mortgages require monthly payments of approximately $39,752 until October 2003. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.8%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 2074 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 52 units of your partnership (up to 13 units) for consideration per unit of (i) 1,794.50 Preferred OP Units, (ii) 1,159.45 Common OP Units, or (iii) $44,859 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 2075 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 2076 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 2077 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 2078 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 2079 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 2080 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell its property or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 2081 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 2082 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 2083 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 2084 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were heard on February 8, 1999, but no decision has been reached by the Court. S-64 2085 While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 2086 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 2087 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 2088 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 2089 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 2090 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 2091 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under California law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash Flow (as defined in your partner- Operating Partnership's agreement of limited ship's agreement of limited partnership). partnership (the "AIMCO Operating The termination date of your partnership is Partnership Agreement") or as provided by December 31, 2023. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to be the The purpose of the AIMCO Operating sole limited partner of La Colina Ranch Partnership is to conduct any business that Apartments, Ltd., a limited partnership, may be lawfully conducted by a limited which will acquire, complete construction of partnership organized pursuant to the and hold your partnership's property. Delaware Revised Uniform Limited Part- Subject to restrictions contained in your nership Act (as amended from time to time, partnership's agreement of limited or any successor to such statute) (the partnership, your partnership may do all "Delaware Limited Partnership Act"), things necessary for or incidental to the provided that such business is to be protection and benefit of your partner- conducted in a manner that permits AIMCO to ship, including, without limitation, be qualified as a REIT, unless AIMCO ceases borrowing funds and creating liens. to qualify as a REIT. The AIMCO Operating Partner-
S-71 2092 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 200 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. In and for such capital contributions as may be addition, the managing general has the established by the general partner in its authority to increase the number of units. sole discretion. The net capital The partnership may not issue senior contribution need not be equal for all OP securities nor issue units for property Unitholders. No action or consent by the OP other than cash or cash and notes. The Unitholders is required in connection with capital contribution need not be equal for the admission of any additional OP all limited partners and no action or con- Unitholder. See "Description of OP sent is required in connection with the Units -- Management by the AIMCO GP" in the admission of any additional limited accompanying Prospectus. Subject to Delaware partners. law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or enter into agreements with any of its contribute funds or other assets to its affiliates; provided that such agreements subsidiaries or other persons in which it must contain terms reasonably has an equity investment,
S-72 2093 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP competitive with those which may be obtained and such persons may borrow funds from the from independent third parties. The general AIMCO Operating Partnership, on terms and partner may also lend money to your conditions established in the sole and partnership as needed with interest charged absolute discretion of the general partner. at the rate of the lesser of the maximum To the extent consistent with the business rate permitted under the laws of Califor- purpose of the AIMCO Operating Partnership nia or the prime rate then being charged for and the permitted activities of the general short-term commercial loans by Bank of partner, the AIMCO Operating Partnership may America N.T. & S.A. plus 3%. transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized, on behalf of your partnership, contains no restrictions on borrowings, and to borrow funds, execute and issue mortgage the general partner has full power and notes and other evidences of indebtedness authority to borrow money on behalf of the and secure such indebtedness by mortgage, AIMCO Operating Partnership. The AIMCO deed of trust, pledge or other lien. Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP review the books and records of your Unitholder's own expense, to obtain a partnership upon reasonable notice at current list of the name and last known reasonable times at the location where such business, residence or mailing address of records are kept by your partnership. the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and complete discretion in the management and affairs of the AIMCO Operating Partnership control of the business of your partnership are vested in AIMCO-GP, Inc., which is the for the purposes stated in your general partner. No OP Unitholder has any partnership's agreement of limited right to participate in or exercise control partnership, makes all decisions affecting or management power over the business and the business of your partnership and manages affairs of the AIMCO Operating Partner- and controls the affairs of your ship. The OP Unitholders have the right to partnership. No limited partner vote on
S-73 2094 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP may take part in the management of the certain matters described under "Comparison business of your partnership, transact any of Your Units and AIMCO OP Units -- Voting business of your partnership or have the Rights" below. The general partner may not power to sign for or to bind your be removed by the OP Unitholders with or partnership to any agreement or document. without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Your partnership's agreement of limited Notwithstanding anything to the contrary set partnership does not limit the liability of forth in the AIMCO Operating Partnership the general partner to your partnership or Agreement, the general partner is not liable any limited partners for acts done in their to the AIMCO Operating Partnership for capacity as general partner. However, under losses sustained, liabilities incurred or your partnership's agreement of limited benefits not derived as a result of errors partnership, the general partners of your in judgment or mistakes of fact or law of partnership are indemnified for any loss or any act or omission if the general partner damage, including legal fees and expenses acted in good faith. The AIMCO Operating and amounts paid in settlement, incurred by Partnership Agreement provides for such parties by reason of any act performed indemnification of AIMCO, or any director or or omitted by such parties on behalf of your officer of AIMCO (in its capacity as the partnership or in furtherance of your previous general partner of the AIMCO partnership's interest, provided that the Operating Partnership), the general partner, party sued will not be entitled to any officer or director of general partner indemnification for losses sustained by or the AIMCO Operating Partnership and such reason of their gross negligence, willful other persons as the general partner may misconduct or breach of fiduciary designate from and against all losses, obligations. claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions
S-74 2095 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner upon a vote the business and affairs of the AIMCO of all of the limited partners. The general Operating Partnership. The general partner partner may resign upon 90 days notice with may not be removed as general partner of the the consent of the remaining general AIMCO Operating Partnership by the OP partner; provided, the remaining general Unitholders with or without cause. Under the partner is qualified to act as such and has AIMCO Operating Partnership Agreement, the sufficient net worth to meet the general partner may, in its sole discretion, requirements of the tax code. The general prevent a transferee of an OP Unit from partner may add another person as general becoming a substituted limited partner partner pursuant to the consent granted by pursuant to the AIMCO Operating Partnership the limited partners in your partnership's Agreement. The general partner may exercise agreement of limited partnership. The this right of approval to deter, delay or affirmative vote or written consent of hamper attempts by persons to acquire a holders of more than 50% of the units is controlling interest in the AIMCO Operating required for the general partner to Partnership. Additionally, the AIMCO substitute another in its place. The limited Operating Partnership Agreement contains partners owning 100% of the limited restrictions on the ability of OP partnership interests then outstanding may Unitholders to transfer their OP Units. See elect another person as additional or "Description of OP Units -- Transfers and substitute general partner without the Withdrawals" in the accompanying Prospectus. consent of the existing general partner. A limited partner may not transfer its units without the consent of the general partner which may be withheld in sole and absolute discretion of the managing general partner.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the general partner of your partnership or Agreement, whereby the general partner may, by limited partners owning at least 10% of without the consent of the OP Unitholders, the then outstanding limited partnership amend the AIMCO Operating Partnership interests. Approval by a majority of the Agreement, amendments to the AIMCO Operating then outstanding limited partnership Partnership Agreement require the consent of interests is necessary to effect an the holders of a majority of the amendment to your partnership's
S-75 2096 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership, except outstanding Common OP Units, excluding AIMCO that any proposal requiring a greater and certain other limited exclusions (a affirmative vote for the matter addressed "Majority in Interest"). Amendments to the also requires such greater affirmative vote AIMCO Operating Partnership Agreement may be for enactment. In addition, the general proposed by the general partner or by partner may amend your partnership's holders of a Majority in Interest. Following agreement of limited partnership from time such proposal, the general partner will to time to add representations, duties or submit any proposed amendment to the OP obligation of the general partner or to Unitholders. The general partner will seek surrender rights granted to the general the written consent of the OP Unitholders on partner, cure any ambiguity or make the proposed amendment or will call a modifications required by state or Federal meeting to vote thereon. See "Description of securities law. Notwithstanding the OP Units -- Amendment of the AIMCO Operating foregoing, certain provisions of your Partnership Agreement" in the accompanying partnership's agreement of limited Prospectus. partnership are not subject to amendment in any case.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives an annual management fee equal to its capacity as general partner of the AIMCO the greater of an amount equal to 7.5% of Operating Partnership. In addition, the the Net Cash Flow or $10,000, payable AIMCO Operating Partnership is responsible monthly in addition to other fees for for all expenses incurred relating to the additional services. Moreover, the general AIMCO Operating Partnership's ownership of partner or certain affiliates may be its assets and the operation of the AIMCO entitled to compensation for additional Operating Partnership and reimburses the services rendered. general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner is subject to assessment, Except for fraud, willful misconduct or nor is any limited partner personally liable gross negligence, no OP Unitholder has for any of the debts of your partnership or personal liability for the AIMCO Operating any of losses except to the extent of its Partnership's debts and obligations, and capital contributions which have become liability of the OP Unitholders for the payable pursuant to your partnership's AIMCO Operating Partnership's debts and agreement of limited partnership. obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a
S-76 2097 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership must Unless otherwise provided for in the manage and control the affairs of your relevant partnership agreement, Delaware law partnership to the best of its ability and generally requires a general partner of a use its best efforts to carry out the Delaware limited partnership to adhere to purposes of your partnership. The general fiduciary duty standards under which it owes partner must diligently and faithfully its limited partners the highest duties of devote such of its time to the business of good faith, fairness and loyalty and which your partnership and has fiduciary generally prohibit such general partner from responsibility for the safekeeping and use taking any action or engaging in any of all funds and assets of your partnership transaction as to which it has a conflict of and cannot employ or permit another to interest. The AIMCO Operating Partnership employ such funds or assets in a manner Agreement expressly authorizes the general except for the exclusive benefit of your partner to enter into, on behalf of the partnership. However, the general partner AIMCO Operating Partnership, a right of may engage or hold interest in other first opportunity arrangement and other business ventures of every kind and conflict avoidance agreements with various description, including ventures in affiliates of the AIMCO Operating competition with your partnership, in which Partnership and the general partner, on such neither your partnership nor any limited terms as the general partner, in its sole partners will have any interest. and absolute discretion, believes are advisable. The AIMCO Operating Partnership In general, your partnership's agreement of Agreement expressly limits the liability of limited partnership and the AIMCO Operating the general partner by providing that the Partnership Agreement have limitations on general partner, and its officers and the liability of the general partner but directors will not be liable or accountable such limitations differ and provide more in damages to the AIMCO Operating protection for the general partner of the Partnership, the limited partners or as- AIMCO Operating Partnership. signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded
S-77 2098 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re-
S-78 2099 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the limited AIMCO Operating Partnership OP Unitholders have voting partners have voting rights Agreement, the holders of rights only with respect to only with respect to the the Preferred OP Units will certain limited matters such following issues: the sale have the same voting rights as certain amendments and of or other disposition of as holders of the Common OP termination of the AIMCO all or substantially all of Units. See "Description of Operating Partnership the assets of your OP Units" in the accompany- Agreement and certain partnership, the sale of ing Prospectus. So long as transactions such as the your partnership's interest any Preferred OP Units are institution of bankruptcy in La Colina Ranch outstanding, in addition to proceedings, an assignment Apartments Ltd. to any any other vote or consent of for the benefit of creditors general partner, a limited partners required by law or and certain transfers by the partner or any of their by the AIMCO Operating general partner of its affiliates, any amendments Partnership Agreement, the interest in the AIMCO to your partnership's affirmative vote or consent Operating Partnership or the agreement of limited part- of holders of at least 50% admission of a successor nership, except in certain of the outstanding Preferred general partner. circumstances, the OP Units will be necessary termination of your for effecting any amendment Under the AIMCO Operating partnership, the removal of of any of the provisions of Partnership Agreement, the a general partner, the the Partnership Unit general partner has the substitution of a general Designation of the Preferred power to effect the partner and the sub- OP Units that materially and acquisition, sale, transfer, stitution or addition of a adversely affects the rights exchange or other general partner absent or preferences of the disposition of any assets of approval by the remaining holders of the Preferred OP the AIMCO Operating general partner. Each matter Units. The creation or Partnership (including, but requires the approval of issuance of any class or not limited to, the exercise holders of a majority of the series of partnership units, or grant of any conversion, outstanding units, except including, without option, privilege or that the removal of a limitation, any partner- subscription right or any general partner and the ship units that may have other right available in election of a substitute or rights senior or superior to connection with any assets additional general partner the Preferred OP Units, at any time held by the without the consent of the shall not be deemed to AIMCO Operating Partnership) existing general partner materially adversely affect or the merger, requires the unanimous the rights or preferences of consolidation, consent of all limited the holders of Preferred OP reorganization or other partners. Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with The general partner may described voting rights, or into another entity, all cause the dissolution of each Preferred OP Units without the consent of the your partnership by retiring shall have one (1) vote per OP Unitholders. unless, the remaining Preferred OP Unit. general partner, or if none, The general partner may more than 50% of the hold- cause the dissolution of the ers of the then outstanding AIMCO Operating Partnership units consent within sixty by an "event of withdrawal," days after the retirement to as defined in the Delaware continue your partnership Limited Partner- and elect a successor gen- eral partner.
S-79 2100 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship Act (including, without In general, you have greater limitation, bankruptcy), voting rights in your unless, within 90 days after partnership than you will the withdrawal, holders of a have as an OP Unitholder. OP "majority in interest," as Unitholders can not remove defined in the Delaware the general partner of the Limited Partnership Act, AIMCO Operating Partnership. agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. The quarterly cash distributions to distribute quarterly all, distributions payable to the at the rate of $0.50 per or such portion as the partners are not fixed in Preferred OP Unit; provided, general partner may in its amount and depend upon the however, that at any time sole and absolute discretion operating results and net and from time to time on or determine, of Available Cash sales or refinancing pro- after the fifth anniversary (as defined in the AIMCO ceeds available from the of the issue date of the Operating Partnership disposition of your Preferred OP Units, the Agreement) generated by the partnership's assets. The AIMCO Operating Partnership AIMCO Operating Partnership general partner will desig- may adjust the annual during such quarter to the nate a record date to distribution rate on the general partner, the special determine the partners Preferred OP Units to the limited partner and the entitled to cash dis- lower of (i) 2.00% plus the holders of Common OP Units tributions, which is not annual interest rate then on the record date es- less than five days nor more applicable to U.S. Treasury tablished by the general than thirty days before each notes with a maturity of partner with respect to such cash distribution. five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a parity with its
S-80 2101 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Class H Cumulative Preferred date. Holders of any other Stock. Such distributions Preferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-81 2102 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may not There is no public market There is no public market transfer or assign any or for the Preferred OP Units for the OP Units. The AIMCO any portion of his interest and the Preferred OP Units Operating Partnership in his limited partnership are not listed on any Agreement restricts the interest unless the general securities exchange. The transferability of the OP partner consents (which Preferred OP Units are Units. Until the expiration consent may be withheld at subject to restrictions on of one year from the date on the sole discretion of the transfer as set forth in the which an OP Unitholder general partner) and the AIMCO Operating Partnership acquired OP Units, subject limited partner complies Agreement. to certain exceptions, such with applicable state and OP Unitholder may not Federal securities laws. Pursuant to the AIMCO transfer all or any por- Notwithstanding the Operating Partnership tion of its OP Units to any foregoing, a limited partner Agreement, until the transferee without the may gratuitously transfer expiration of one year from consent of the general all or any portion of his the date on which a holder partner, which consent may interest in his limited of Preferred OP Units be withheld in its sole and partnership interest to his acquired Preferred OP Units, absolute discretion. After spouse, any member of his subject to certain the expiration of one year, family, a trust for the exceptions, such holder of such OP Unitholder has the benefit of those individuals Preferred OP Units may not right to transfer all or any or a corporation in which transfer all or any portion portion of its OP Units to such partner has a majority of its Preferred OP Units to any person, subject to the interest. No assignment or any transferee without the satisfaction of certain con- transfers will be permitted consent of the general ditions specified in the if such assignment of partner, which consent may AIMCO Operating Partnership transfer would result in 50% be withheld in its sole and Agreement, including the or more of the limited absolute discretion. After general partner's right of partnership interest being the expiration of one year, first refusal. See assigned or transferred such holders of Preferred OP "Description of OP Units -- within any twelve-month Units has the right to Transfers and Withdrawals" period. In order for a transfer all or any portion in the accompanying transferee to be substituted of its Preferred OP Units to Prospectus. as a limited partner, in any person, subject to the addition to the above satisfaction of certain After the first anniversary requirements: (1) a fully conditions specified in the of becoming a holder of executed and acknowledged AIMCO Operating Partner- Common OP Units, an OP written instrument of ship Agreement, including Unitholder has the right, assignment must be filed the general partner's right subject to the terms and with your partnership, (2) of first refusal. conditions of the AIMCO the interest transferred Operating Partnership must be at least one unit, After a one-year holding Agreement, to require the except in certain period, a holder may redeem AIMCO Operating Partnership circumstances, (3) the Preferred OP Units and to redeem all or a portion transfer fees must be paid receive in exchange of the Common OP Units held and (4) such other therefor, at the AIMCO Oper- by such party in exchange conditions as are set forth ating Partnership's option, for a cash amount based on in your partnership's (i) subject to the terms of the value of shares of Class agreement of limited any Senior Units (as defined A Common Stock. See partnership must be below), cash in an amount "Description of OP fulfilled. equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying There are no redemption OP Units tendered for Prospectus. Upon receipt of rights associated with your redemption, (ii) a number of a notice of redemption, the units. shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-82 2103 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 2104 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 2105 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 2106 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 2107 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 2108 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 2109 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 2110 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 2111 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 2112 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 2113 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner receives an annual management fee equal to the greater of 7.5% of the net cash flow or $10,000, payable monthly in addition to reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $45,370 in 1996, $39,929 in 1997 and $32,447 in 1998. The property manager received management fees of $80,878 in 1996, $83,502 in 1997 and $89,785 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 2114 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $583,167 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 2115 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The consolidated financial statements of La Colina Partners, Limited as of December 31, 1997 and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 2116 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 -- (unaudited)................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Consolidated Balance Sheets as of December 31, 1997 and 1996(unaudited)........................................... F-7 Consolidated Operations and changes in partners' deficit for the years ended December 31, 1997 and 1996 (unaudited).... F-8 Consolidated Statement of Cash Flows -- for the years ended December 31, 1997 and 1996 (unaudited).................... F-9 Notes to Consolidated Financial Statements.................. F-10
F-1 2117 LA COLINA PARTNERS, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 729,107 Other assets................................................ 413,574 Investment property Land...................................................... $ 546,579 Building and related personal property.................... 5,225,819 5,772,398 ----------- Less: Accumulated depreciation............................ (3,243,122) 2,529,276 ----------- ----------- Total assets...................................... $ 3,671,957 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... $ 277,532 Notes payable............................................... 5,105,645 Partners' deficit................................. (1,711,220) ----------- Total liabilities and partners' deficit........... $ 3,671,957 ===========
See accompanying notes to financial statements. F-2 2118 LA COLINA PARTNERS, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,258,151 $1,200,132 Other income.............................................. 84,796 88,681 ---------- ---------- Total revenues.................................... 1,342,947 1,288,813 Expenses: Operating expenses........................................ 579,341 578,367 Depreciation expense...................................... 158,434 155,788 Interest expense.......................................... 323,374 379,424 Property tax expense...................................... 152,476 145,215 ---------- ---------- Total expenses.................................... 1,213,625 1,258,794 Net income........................................ $ 129,322 $ 30,019 ========== ==========
See accompanying notes to financial statements. F-3 2119 LA COLINA PARTNERS, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 -------- ---------- Operating activities: Net income................................................ $129,322 $ 30,019 Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 158,434 155,788 Changes in accounts: Receivables and deposits and other assets.............. 49,139 42,083 Accounts payable and accrued expenses.................. (19,569) 533,492 -------- ---------- Net cash provided by (used in) operating activities...................................... 317,326 761,382 -------- ---------- Investing activities: Property improvements and replacements.................... (63,771) (133,271) -------- ---------- Net cash provided by (used in) investing activities....... (63,771) (133,271) -------- ---------- Financing activities: Payments on mortgage...................................... (46,693) (580,394) Partners' Distributions................................... (354) (478) -------- ---------- Net cash provided by (used in) financing activities....... (47,047) (580,872) -------- ---------- Net increase (decrease) in cash and cash equivalents...... 206,508 47,239 Cash and cash equivalents at beginning of period.......... 522,599 1,148,129 -------- ---------- Cash and cash equivalents at end of period................ $729,107 $1,195,368 ======== ==========
See accompanying notes to financial statements. F-4 2120 LA COLINA PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of La Colina Partners, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 2121 INDEPENDENT AUDITORS' REPORT General Partners La Colina Partners, Limited: We have audited the consolidated balance sheet of La Colina Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of operations and changes in partners' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Colina Partners, Limited and its limited partnership interest as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina December 9, 1998 F-6 2122 LA COLINA PARTNERS, LIMITED CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Cash and cash equivalents................................... $ 522,599 $ 1,148,129 Receivables and deposits.................................... 217,907 224,652 Restricted escrows (Note B)................................. 115,192 110,457 Other Assets................................................ 129,614 149,870 Investment properties (Note C): Land...................................................... 546,579 546,579 Buildings and related personal property................... 5,162,046 5,011,827 ----------- ----------- 5,708,625 5,558,406 Less accumulated depreciation............................. (3,084,686) (2,875,667) ----------- ----------- 2,623,939 2,682,739 ----------- ----------- $ 3,609,251 $ 4,315,847 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 20,214 $ 23,453 Tenant security deposits.................................. 38,715 49,575 Accrued taxes............................................. 193,620 182,364 Other liabilities......................................... 44,552 236,937 Notes payable (Note C).................................... 5,152,338 5,747,001 Partners' deficit........................................... (1,840,188) (1,923,483) ----------- ----------- $ 3,609,251 $ 4,315,847 =========== ===========
See accompanying notes to consolidated financial statements. F-7 2123 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Revenues: Rental income............................................. $ 1,624,251 $ 1,584,879 Other income.............................................. 114,404 96,764 ----------- ----------- Total revenues.................................... 1,738,655 1,681,643 ----------- ----------- Expenses: Operating (Notes D)....................................... 687,976 799,570 General and administrative (Note D)....................... 39,066 53,865 Depreciation.............................................. 209,019 203,851 Interest.................................................. 505,679 508,941 Property taxes............................................ 193,620 182,364 ----------- ----------- Total expenses.................................... 1,635,360 1,748,591 ----------- ----------- Net income (loss)........................................... 103,295 (66,948) Distributions to partners................................... (20,000) (1,000) Partners' deficit at beginning of year...................... (1,923,483) (1,855,535) ----------- ----------- Partners' deficit at end of year............................ $(1,840,188) $(1,923,483) =========== ===========
See accompanying notes to consolidated financial statements. F-8 2124 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ---------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)......................................... $ 103,295 $ (66,948) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 209,019 203,851 Amortization of discounts and loan costs............... 37,846 36,167 Change in accounts: Receivables and deposits............................. 6,745 (8,589) Other assets......................................... (6,640) -- Accounts payable..................................... (3,239) 9,328 Tenant security deposit liabilities.................. (10,860) (3,254) Accrued taxes........................................ 11,256 25,126 Other liabilities.................................... (192,385) 61,388 ---------- ---------- Net cash provided by operating activities......... 155,037 257,069 ---------- ---------- Cash flows from investing activities: Property improvements and replacements.................... (150,219) (57,762) Net deposits to restricted escrows........................ (4,735) 8,688 ---------- ---------- Net cash used in investing activities............. (154,954) (49,074) ---------- ---------- Cash flows from financing activities: Payments on notes payable................................. (605,613) (61,068) Distributions to partners................................. (20,000) (1,000) ---------- ---------- Net cash used in financing activities............. (625,613) (62,068) ---------- ---------- Net (decrease) increase in cash and cash equivalents........ (625,530) 145,927 Cash and cash equivalents at beginning of year.............. 1,148,129 1,002,202 ---------- ---------- Cash and cash equivalents at end of year.................... $ 522,599 $1,148,129 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 658,831 $ 415,958 ========== ==========
See accompanying notes to consolidated financial statements. F-9 2125 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of La Colina Partners, Limited (the "Partnership"), and its limited partnership interest in La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 264 unit apartment complex, located in Denton, Texas. The Partnership was organized as a California limited partnership on July 15, 1983. The Managing General Partner of the Partnership is Angeles Properties, Inc. ("API"). The non-managing general partners, who also serve as non-managing general partners of the Project Partnership, are the Elliott Family Partnership, Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a California limited partnership). The general partners act as general partners in other limited partnerships and are affiliates of Angeles Investment Properties, Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the general partners have contributed $26,000 to the Partnership for which they are entitled to a 2% interest in the operating profits, losses, credits and cash distributions of the Partnership. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Capital contributions of the limited partners aggregated $2,548,000. Pursuant to the terms of the Agreement, the limited partners will receive a 98% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions to the Project Partnership and is entitled to a 98% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. The Project Partnership's general partners are entitled to the remaining 2% of the same. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-10 2126 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED) Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $122,974 and $143,870, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $115,192 and $110,457, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ----------- (UNAUDITED) First mortgage note payable in monthly installments of $38,684, including interest at 7.83%, due October 15, 2003; collateralized by land and buildings................ $5,049,151 $5,115,177 Second mortgage note payable in interest only monthly installments of $1,068, at a rate of 7.83%, with principal due October 15, 2003; collateralized by land and buildings................................................. 163,710 163,710 Note payable to Angeles Acceptance Pool, L.P., ("AAP"), an affiliate of API, represents an unsecured working capital loan with interest at prime plus 3% payable monthly with principal and any accrued interest to be repaid at the earlier of 1) the sale or refinancing of the investment property, or 2) November 25, 1997......................... -- 539,587 ---------- ---------- Principal balance at year end............................... 5,212,861 5,818,474 Less unamortized discount................................... (60,523) (71,473) ---------- ---------- $5,152,338 $5,747,001 ========== ==========
F-11 2127 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED) Scheduled net principal payments of the notes during the years subsequent to December 31, 1997 are as follows: 1998.................................................... $ 71,386 1999.................................................... 77,179 2000.................................................... 83,444 2001.................................................... 90,218 2002.................................................... 97,541 Thereafter.............................................. 4,793,093 ---------- $5,212,861 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments of a partnership administration fee to general partners and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ----------- (UNAUDITED) Property management fee........................ $83,502 $80,878 Reimbursements for services of affiliates...... $32,910 $32,430 Construction oversight reimbursements.......... $ 7,019 $12,940
F-12 2128 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 2129 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 2130 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 2131 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 2132 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 2133 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 2134 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 2135 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 2136 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 2137 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 2138 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 2139 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi) Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix) Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi) Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 2140 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv) Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx) Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 2141 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 2142 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 2143 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 2144 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 2145 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 2146 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 2147 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 2148 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 2149 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 2150 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 2151 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 2152 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 2153 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 2154 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 2155
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i) Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 2156 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 2157
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i) Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 2158 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 2159 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 2160 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 2161
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i) Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 2162 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 2163 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 2164 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 2165
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 2166 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 2167 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 2168 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2169 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2170 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2171 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2172 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2173 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2174 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2175 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2176 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2177 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2178 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: La Colina Partners, Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of La Colina Partners, Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $44,859 in cash, or 1,159.45 Common OP Units of the Purchaser, or 1,794.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended October 31, 1996 and 1997, and the nine months ending July 31, 1998; A-1 2179 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2180 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2181 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2182
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2183
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2184
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2185
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2186 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2187 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 12, 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Lake Eden Associates, L.P. in exchange for your choice of: 2,848.50 of our 8.0% Class Two Partnership Preferred Units; 1,840.75 of our Partnership Common Units; or $71,211 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $71,211 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2188 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Lake Eden Associates, L.P............................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-46 Borrowing Policies........................... S-47 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 Overview..................................... S-51 Results of Operations........................ S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59
i 2189
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84 Distributions................................ S-84
PAGE ----- Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2190 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $10,011,000, less approximately $272,130 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 2191 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 2192 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $5,697 per year on the number of Preferred OP Units, or distributions of $4,601.88 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 2193 partnership's units. During 1998, your partnership paid cash distributions of $1,394.37 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 2194 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $5,860,071 balloon payment due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 2195 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and requires a balloon payment of $5,860,071. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 2196 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $1,394.37 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,697.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,394.37 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,601.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the S-7 2197 Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2198 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 1,126,000 Capitalization rate......................................... 11.25% ----------- Gross valuation of partnership properties................... $10,011,000 Plus: Cash and cash equivalents............................. 276,892 Plus: Other partnership assets, net of security deposits.... 626,127 Less: Mortgage debt, including accrued interest............. (7,429,742) Less: Accounts payable and accrued expenses................. (204,140) Less: Other liabilities..................................... (204,211) ----------- Partnership valuation before taxes and certain costs........ 3,075,926 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (272,130) Less: Closing costs......................................... (250,275) ----------- Estimated net valuation of your partnership................. 2,553,521 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 2,527,986 Total number of units............................. 35.5 ----------- Estimated valuation per unit................................ 71,211 =========== Cash consideration per unit................................. $ 71,211 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $71,211 by the $25 liquidation preference of each Preferred OP Unit to get 2,848.50 Preferred OP Units per unit. S-9 2199 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $71,211 by a price of $38.69 to get 1,840.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT --------- Cash offer consideration.................................... $ 71,211 Partnership Preferred Units................................. $ 71,211 Partnership Common Units.................................... $ 71,211 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 71,211 Estimated going concern value............................. $ 63,594 Alternative going concern value(1)........................ $ 69,669 Net book value (deficit).................................. $(102,545)
- --------------- (1) Assumes sale of the property when balloon payments are due instead of refinancing the mortgages. S-10 2200 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Lake Eden Associates, L.P. is a Delaware limited partnership which was formed on January 11, 1985 for the purpose of owning and operating a single property located in Columbus, Ohio, known as "Lake Eden/Lebanon Station Apartments." Your partnership's property consists of 387 units and was built in two phases, the first of which was completed in 1972, and the second was completed between 1980 and 1983. Your partnership has no employees. As of September 30, 1998, there were 35.5 units of limited partnership interest issued and outstanding, which were held of record by 64 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 2,045,000 limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $9,794.84 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies, Sale or Financing of Investments. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $6,924,207, payable to Marine Midland Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $250,216, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 2201 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 2,848.50 of our Class Two Partnership Preferred Units; - 1,840.75 of our Partnership Common Units; or - $71,211 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 35.5 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,848.50 Preferred OP Units, 1,840.75 Common OP Units, or $71,211 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 2202 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 2203 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $71,211 in cash, 2,848.50 Preferred OP Units or 1,840.75 Common OP Units. Both your units and the S-14 2204 OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $71,211. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $38,271 for the fiscal year ended December 31, 1998. The property manager received management fees of $110,364 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $631,998 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 2205 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2206
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2207 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2208
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2209 SUMMARY FINANCIAL INFORMATION OF LAKE EDEN ASSOCIATES, L.P. The summary financial information of Lake Eden Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Lake Eden Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is derived from the audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." LAKE EDEN ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues................. $1,643,376 $1,681,494 $2,249,681 $2,115,254 $2,075,758 $2,018,815 $1,955,707 Net Income/(Loss).............. 139,433 164,705 252,740 48,490 144,148 (204,553) (243,914) Net Income (Loss) per limited partnership unit............. 3,688.42 4,593.18 7,048.25 1,352.25 4,019.92 (5,704.42) (6,802.11) Distributions per limited partnership unit............. 1,394.37 1,770.04 1,767.69 2,574.00 1,056.57 1,900.83 --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.......... $ 82,323 $ 375,286 $ 326,890 $ 431,733 $ 436,086 $ 142,899 $ 288,458 Real Estate, Net of Accumulated Depreciation......... 2,834,889 2,683,808 2,856,193 2,708,827 2,758,941 2,802,668 3,143,200 Total Assets........... 3,653,016 3,694,711 3,925,746 3,825,929 3,977,920 3,971,190 4,310,475 Notes Payable.......... 6,954,603 7,119,979 7,088,397 7,245,235 7,388,963 7,520,678 7,641,385 Partners' Capital/(Deficit)...... (3,550,909) (3,728,461) (3,640,342) (3,829,695) (3,785,885) (3,892,146) (3,619,432) Total Distributions...... 50,000 63,357 63,387 92,300 37,887 68,161 -- Net increase (decrease) in cash and cash equivalents............ (234,567) (68,447) (104,843) (4,353) 293,187 (83,459) -- Net cash provided by operating activities... 85,451 287,408 530,163 412,336 656,788 275,317 -- Ratio of earnings to fixed charges.......... 1.32/1 1.37/1 1.38/1 1.07/1 1.21/1 0.69/1 0.64/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING LAKE EDEN PARTNERSHIP ASSOCIATES, L.P. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $4,601.88 $1,394.37 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $5,697.00 $1,394.37
S-20 2210 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 2211 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $10,011,000, less approximately $272,130 of deferred maintenance. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 2212 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 2213 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 2214 is equivalent to distributions of $5,697 per year on the number of Preferred OP Units, or distributions of $4,601.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $1,394.37 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 2215 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $5,860,071 balloon payment due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment date, or it will be in default and could lose the property to foreclosure. S-26 2216 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest, consisting of a 0% limited partnership interest and a .992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 2217 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 2218 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require a balloon payment totaling $5,680,071. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-29 2219 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of a majority of all the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 2220 - Preferred Quarterly Distributions. Your partnership paid distributions of $1,394.37 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,697 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,394.37 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,601.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after S-31 2221 offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by S-32 2222 us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $1,126,233 11.25% $10,011,000 -----------
(1) The total net operating income is equal to total revenues of $2,230,352, less total expenses of $988,019 and recurring replacement costs of $116,100. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,553,521. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 1,126,000 Capitalization rate......................................... 11.25% ----------- Gross valuation of partnership properties................... 10,011,000 Plus: Cash and cash equivalents............................. 276,892 Plus: Other partnership assets, net of security deposits.... 626,127 Less: Mortgage debt, including accrued interest............. (7,429,742) Less: Accounts payable and accrued expenses................. (204,140) Less: Other liabilities..................................... (204,211) ----------- Partnership valuation before taxes and certain costs........ 3,075,926 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (272,130) Less: Closing costs......................................... (250,275) ----------- Estimates net valuation of your partnership................. 2,553,521 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 2,527,986 Total number of units............................. 35.5 ----------- Estimated valuation per unit................................ 71,211 =========== Cash consideration per unit................................. 71,211 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $71,211 by the $25 liquidation preference of each Preferred OP Unit to get 2,848.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $71,211 by a price of $38.69 to get 1,840.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-33 2223 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,553,521 or .45% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $165,000 for the nine months ended September 30, 1997 to $139,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-34 2224 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $71,211, based on a total estimated value of your partnership's property of $10,011,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $5,697 per year on the number of Preferred OP Units, or distributions of $4,601.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $1,394.37. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. S-35 2225 The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 2226 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT --------- Cash offer price............................................ $ 71,211 Partnership preferred units................................. $ 71,211(1) Partnership common units.................................... $ 71,211(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 71,211 Estimated going concern value............................. $ 63,594 Net book value (deficit).................................. $(102,545) Alternative going concern value........................... $ 69,669
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 2227 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $63,594 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $69,669 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $(102,545) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-38 2228 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $72,420 per unit, going concern value of $51,422 per unit and liquidation value of $65,392 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $1,209, $(19,789) and $(5,819). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-39 2229 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $ 2,311,050 Operating Expenses.......................................... (1,094,175) Replacement Reserves -- Net................................. (171,371) Debt Service................................................ (785,256) Capital Expenditures........................................ (134,000) ----------- Net Cash Flow..................................... $ 126,248 ===========
S-40 2230 The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-41 2231 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11.25%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $272,130. Stanger observed that your partnership liquidation value of $2,527,986 was allocated 99% to the limited partners and was divided by the total units outstanding of 35.5 to provide the liquidation value per unit of $71,211. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,126,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $22,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.75%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.8%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 35.5 to achieve management's estimate of going concern value of $63,594 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $71,211 per unit is equal to management's estimate of liquidation value, and reflects a 12% premium to management's estimate of going concern value of $63,594. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third S-42 2232 year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.0%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $72,420, $51,422, and $65,392 representing premiums (discounts) to the offer price of 1.7%, (27.8%) and (8.2)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the S-43 2233 partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed S-44 2234 transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Lake Eden Associates, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in 1985. AIMCO acquired Insignia in October 1998. There are currently a total of 64 limited partners of your partnership and a total of 35.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 11, 1985 for the purpose of owning an apartment property located in Columbus, Ohio, known as "Lake Eden/Lebanon Station Apartment." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in two phases, the first of which was completed in 1972, and the second was completed between 1980 and 1983 and consists of 387 apartment units. There are 184 one-bedroom apartments, 173 two-bedroom apartments and 30 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 89.06% in 1998, 96.90% in 1997 and 96.90% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $272,130 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, heating, ventilation and air conditioning systems ("HVAC"), electrical, siding/trim/facia/soffits, exterior paint, drives and parking lot, and life support systems. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $455 $431 $420 $407 $399
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $182,603 of $3,065,390 of assessed valuation with a current yearly tax rate of 5.96%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 6.25% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. S-45 2235 INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 89% and $442, respectively, at December 31, 1998, compared to 97% and $455, respectively, at December 31, 1997. In addition, the general partner noted that it expects to spend approximately $272,130 for capital improvements at the property in 1999 to repair and improve the property's HVAC, electrical, siding, exterior paint, parking lot and life support systems. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." S-46 2236 BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $6,924,307, payable to Marine Midland Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $250,216, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,045,000 of limited partnership units in 1985. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to your partnership or any limited partner for any acts performed by any of them or any failure to act in the absence of gross negligence or willful malfeasance. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates for any acts or omissions performed by them on behalf of your partnership. Your partnership's agreement of limited partnership does not limit the amount of type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 2237 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $100,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $1,067 $ 379 $0 $ 9,377 1994................................... 1,920 645 0 16,879 1995................................... 1,067 379 0 9,377 1996................................... 2,600 923 0 22,844 1997................................... 1,786 634 0 15,688 1998................................... 1,408 500 0 12,375 ------ ------ -- ------- Total........................ $9,848 $3,460 $0 $86,540
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.0% 0 1995......................... 0 0.0% 0 1996......................... 0 0.0% 0 1997......................... 0.5% 1.41% 1 1998......................... 0 0.0% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.992% interest as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 2238 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $46,540 1995........................................................ 51,604 1996........................................................ 67,256 1997........................................................ 67,076 1998........................................................ 38,271
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1994........................................................ Not available 1995........................................................ $103,207 1996........................................................ 104,498 1997........................................................ 111,851 1998........................................................ 110,364
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 2239 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
LAKE EDEN, LTD. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents...... $ 92,323 $ 375,286 $ 326,890 $ 431,733 $ 436,086 $ 142,899 $ 288,458 Land & Building................ 8,971,915 8,627,112 8,847,926 8,506,837 8,377,553 8,243,198 8,106,287 Accumulated Depreciation....... (6,137,026) (5,943,304) (5,991,733) (5,798,010) (5,618,612) (5,440,530) (4,963,087) Other Assets................... 725,804 635,617 742,663 685,369 720,499 962,690 878,818 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $ 3,653,016 $ 3,694,711 $ 3,925,746 $ 3,825,929 $ 3,977,920 $ 3,971,190 $ 4,310,476 =========== =========== =========== =========== =========== =========== =========== Notes Payable.................. $ 6,954,603 $ 7,119,979 $ 7,088,397 $ 7,245,235 $ 7,388,963 $ 7,520,678 $ 7,641,385 Other Liabilities.............. 249,322 303,193 477,691 410,389 374,842 342,658 288,523 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $ 7,203,925 $ 7,423,172 $ 7,566,088 7,655,624 $ 7,763,805 $ 7,863,336 $ 7,929,908 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit............... $(3,550,909) $(3,728,461) $(3,640,342) $(3,829,695) $(3,785,885) $(3,892,146) $(3,619,432) =========== =========== =========== =========== =========== =========== ===========
LAKE EDEN, LTD. ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS FOR THE YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................. $ 1,529,692 $ 1,573,351 $ 2,112,517 $ 2,003,086 $ 1,952,779 $ 1,891,415 $ 1,851,266 Other Income................... 113,684 108,143 137,164 112,168 122,979 127,400 104,441 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue.......... $ 1,643,376 $ 1,681,494 $ 2,249,681 $ 2,115,254 $ 2,075,758 $ 2,018,815 $ 1,955,707 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............. $ 799,574 $ 798,673 $ 927,690 $ 999,362 $ 840,566 $ 846,666 $ 845,721 General & Administrative....... -- -- 59,886 59,403 56,641 47,598 73,921 Depreciation................... 145,293 145,293 193,723 179,399 193,531 477,444 464,998 Interest Expense............... 431,020 443,508 652,111 664,592 676,651 687,702 675,753 Property Taxes................. 128,056 129,315 163,531 164,008 164,221 163,958 139,228 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses......... $ 1,503,943 $ 1,516,789 $ 1,996,941 $ 2,066,764 $ 1,931,610 $ 2,223,368 $ 2,199,621 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (loss) before extraordinary items.......... $ 139,433 $ 164,705 $ 252,740 $ 48,490 $ 144,148 $ (204,553) $ (243,914) Extraordinary Items............ -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (loss).............. $ 139,433 $ 164,705 $ 252,740 $ 48,490 $ 144,148 $ (204,553) $ (243,914) =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit............. $ 3,888.42 $ 4,593.18 $ 7,048.25 $ 1,352.25 $ 4,019.92 $ (5,704.42) $ (6,802.11) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............. $ 1,394.37 $ 1,770.04 $ 1,767.69 $ 2,574.00 $ 1,056.57 $ 1,900.83 $ -- =========== =========== =========== =========== =========== =========== ===========
S-50 2240 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $139,000 for the nine months ended September 30, 1998, compared to $165,000 for the nine months ended September 30, 1997. The decrease in net income of $26,000 was the result of a decrease in revenues, partially off-set by a decrease in operating and other expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,643,000 for the nine months ended September 30, 1998, compared to $1,681,000 for the nine months ended September 30, 1997, a decrease of $38,000, or 2.3%. The Partnership increased rental rates by an average of 4.5%; however, occupancy decreased 6% to 89%. The increase in Other Income of $6,000 was due primarily to higher lease cancellation fees and utility fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $800,000 for the nine months ended September 30, 1998, compared to $799,000 for the nine months ended September 30, 1997, an increase of $1,000. Advertising costs increased by $20,000 as management tried to increase occupancy. This was off-set by lower maintenance costs of $21,000. The property incurred a major landscaping project of $109,000 in 1998, whereas it spent $130,000 on an exterior painting and construction rehab project for the prior year. Partnership Property management expenses totaled $81,000 for the nine months ended September 30, 1998, compared to $84,000 for the nine months ended September 30, 1997, a decrease of $3,000. INTEREST EXPENSE Interest expense decreased $12,000 to $431,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This decrease is the result of a lower outstanding mortgage balance due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $252,740 for the year ended December 31, 1997, compared to $48,490 for the year ended December 31, 1996. The increase in net income of $204,250, or 421%, was primarily the result of an increase in rental revenue and other income offset by a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. S-51 2241 REVENUES Rental and other property revenues from the Partnership's Property totaled $2,249,681 for the year ended December 31, 1997, compared to $2,115,254 for the year ended December 31, 1996, an increase of $134,427 or 6.4%. This increase was primarily the result of an increase in occupancy of 2% to 94% and a rental rate increase averaging 4%. Additionally, other income increased by $24,996 due to increased income related to pet fees, deposit forfeitures, laundry income, and late payment charges. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $927,690 for the year ended December 31, 1997, compared to $999,362 for the year ended December 31, 1996, a decrease of $71,672 or 7.2%. This decrease was primarily due to a decrease in costs associated with noncapitalizable exterior improvements. During 1996 exterior painting expenses, interior building improvements and office equipment expenditures were incurred to help improve occupancy. Therefore a $103,000 decrease was incurred in 1997 as further extensive expenses were not necessary. These decreases are offset by exterior building repairs, parking lot construction services, and major landscaping expense increases of $53,000. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $59,886 for the year ended December 31, 1997 compared to $59,403 for the year ended December 31, 1996, an increase of $483 or 0.8%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $652,111 for the year ended December 31, 1997, compared to $664,592 for the year ended December 31, 1996, a decrease of $12,481, or 1.9%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized net income of $48,490 for the year ended December 31, 1996 compared to $144,148 for the year ended December 31, 1995. The decrease of $95,658 or 66.4% was primarily due to an increase in operating expenses offset by an increase in total revenue. These factors will be discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership's Property totaled $2,115,254 for the year ended December 31, 1996, compared to $2,075,758 for the year ended December 31, 1995, an increase of $39,496, or 1.9%. The partnership increased rental rates by an average of 3% which was partially offset by a decrease in occupancy of 2% to 92.5%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $999,362 for the year ended December 31, 1996, compared to $840,566 for the year ended December 31, 1995, an increase of $158,796 or 18.9%. This increase was primarily the result of an increase in renovation expenditures related to increases in major landscaping of $4,200, landscaping supplies of $4,300, contract yard and grounds of $4,800, contract cleaning of $17,700, plumbing supplies of $13,300, exterior building of $4,900, exterior painting of $97,000, and wallpaper of $4,900. These expenses are offset by a decrease in parking lot costs of S-52 2242 $11,600. Management expenses totaled $104,498 for the year ended December 31, 1996, compared to $103,202 for the year ended December 31, 1995, an increase of $1,296, or 1.3%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $59,403 for the year ended December 31, 1996 compared to $56,641 for the year ended December 31, 1995, an increase of $2,762 or 4.9%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $664,592 for the year ended December 31, 1996, compared to $676,651 for the year ended December 31, 1995, a decrease of $12,059, or 1.8%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $92,323 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $6,594,603. The mortgages require monthly payments of approximately $65,438 until November 2002, at which time a balloon payment of approximately $6,369,388 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 2243 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 35.5 units of your partnership (up to 8.75 units) for consideration per unit of (i) 2,848.50 Preferred OP Units, (ii) 1,840.75 Common OP Units, or (iii) $71,211 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 2244 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 2245 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 2246 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 2247 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 2248 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 2249 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 2250 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 2251 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 2252 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 2253 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 2254 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 2255 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 2256 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 2257 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 2258 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 2259 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 2260 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Available Cash Flow (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2008. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating purchase, hold, lease, manage and operate Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your part- partnership organized pursuant to the nership's agreement of limited partnership, Delaware Revised Uniform Limited Part- your partnership may perform all acts nership Act (as amended from time to time, necessary or appropriate in connection or any successor to such statute) (the therewith and reasonably related thereto, "Delaware Limited Partnership Act"), including acquiring additional real or per- provided that such business is to be sonal property, borrowing money and creating conducted in a manner that permits AIMCO to liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 2261 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling 35.5 units for cash and notes to limited partners and to other persons, and selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or con- sole discretion. The net capital sent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership sets forth contracts that are to contribute funds or other assets to its be made with the general partner and subsidiaries or other persons in which it affiliates of the general partner. has an equity investment,
S-72 2262 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP In addition, the general partner may make and such persons may borrow funds from the loans to your partnership in such sums as AIMCO Operating Partnership, on terms and the general partner deems appropriate and conditions established in the sole and necessary for the conduct of your absolute discretion of the general partner. partnership's business. The terms and To the extent consistent with the business maturities of such loans must be reasonable purpose of the AIMCO Operating Partnership as determined by the general partner, and the permitted activities of the general interest charged cannot exceed the greater partner, the AIMCO Operating Partnership may of 2 1/2% over the base rate then being transfer assets to joint ventures, limited charged by Third National Bank in Nashville liability companies, partnerships, or the interest rate paid by the general corporations, business trusts or other partner to a third party lender for the business entities in which it is or thereby funds and other charges and fees must be at becomes a participant upon such terms and least as favorable to your partnership as subject to such conditions consistent with those negotiated by unaffiliated lenders on the AIMCO Operating Partnership Agreement comparable loans for the same purpose in the and applicable law as the general partner, same locale. in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations on behalf of your the general partner has full power and partnership and to give as security therefor authority to borrow money on behalf of the any partnership's property. However, the AIMCO Operating Partnership. The AIMCO general partner may not incur any indebt- Operating Partnership has credit agreements edness pursuant to a non-recourse loan if that restrict, among other things, its the creditor acquires, at any time as a ability to incur indebtedness. result of making the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all of the limited partners Unitholder's own expense, to obtain a at all reasonable times at the principal current list of the name and last known office of the general partners in Tennessee. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and the exclusive power to manage and control affairs of the AIMCO Operating Partnership your partnership and its business and are vested in AIMCO-GP, Inc., which is the affairs. The general partner has all rights general partner. No OP Unitholder has any and power which may be possessed by general right to participate in or exercise control partners under applicable laws and such or management power over the busi-
S-73 2263 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP additional rights and power as necessary, ness and affairs of the AIMCO Operating advisable or convenient to the discharge of Partnership. The OP Unitholders have the their duties under your partnership's right to vote on certain matters described agreement of limited partnership. A limited under "Comparison of Your Units and AIMCO OP partner may not take part in or interfere in Units -- Voting Rights" below. The general any manner with the conduct or control of partner may not be removed by the OP the business of your partnership and will Unitholders with or without cause. have no right or authority to act for or bind your partnership, except that limited In addition to the powers granted a general partners may exercise the voting and other partner of a limited partnership under rights provided in this your partnership's applicable law or that are granted to the agreement of limited partnership and under general partner under any other provision of applicable laws. the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts performed by it or any failure to act losses sustained, liabilities incurred or in the absence of gross negligence or benefits not derived as a result of errors willful malfeasance. However, your in judgment or mistakes of fact or law of partnership's agreement of limited any act or omission if the general partner partnership does not provide for the acted in good faith. The AIMCO Operating indemnification of the general partner or Partnership Agreement provides for its affiliates for any acts or omissions indemnification of AIMCO, or any director or performed by them on behalf of your officer of AIMCO (in its capacity as the partnership. previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (in-
S-74 2264 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP cluding legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner for cause the business and affairs of the AIMCO upon a vote of the limited partners owning a Operating Partnership. The general partner majority of the outstanding units. The may not be removed as general partner of the general partner may not transfer, assign, AIMCO Operating Partnership by the OP sell, withdraw or otherwise dispose of its Unitholders with or without cause. Under the interest unless it obtains the prior written AIMCO Operating Partnership Agreement, the consent of those persons owning more than general partner may, in its sole discretion, 50% of the units and satisfies other prevent a transferee of an OP Unit from conditions set forth in your partnership's becoming a substituted limited partner agreement of limited partnership. The pursuant to the AIMCO Operating Partnership consent of all limited partners is necessary Agreement. The general partner may exercise for the approval of a new general partner. A this right of approval to deter, delay or limited partner may not transfer his hamper attempts by persons to acquire a interests without the written consent of the controlling interest in the AIMCO Operating general partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add representations, duties or Agreement, whereby the general partner may, obligations of the general partner or its without the consent of the OP Unitholders, affiliates or to surrender any right or amend the AIMCO Operating Partnership power granted to them for the benefit of the Agreement, amendments to the AIMCO Operating limited partners, to cure any ambiguity or Partnership Agreement require the consent of error and to admit additional or substitute the holders of a majority of the outstanding limited partners. Other amendments of your Common OP Units, excluding AIMCO partnership's agreement of lim-
S-75 2265 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ited partnership may be proposed by the and certain other limited exclusions (a general partner. Such proposals will be sent "Majority in Interest"). Amendments to the to the limited partners together with a AIMCO Operating Partnership Agreement may be recommendation of the general partner as to proposed by the general partner or by the proposal. The general partner may holders of a Majority in Interest. Following require a response within a specified time such proposal, the general partner will not less than 30 days from the notice and submit any proposed amendment to the OP failure to respond will constitute a vote Unitholders. The general partner will seek which is consistent with the general the written consent of the OP Unitholders on partners' recommendation. Approval of such the proposed amendment or will call a proposals must be given by the limited meeting to vote thereon. See "Description of partners owning at least 51% of the units. OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fees for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not bound by, or personally liable for, the personal liability for the AIMCO Operating expenses, liabilities or obligation of your Partnership's debts and obligations, and partnership in excess of the limited liability of the OP Unitholders for the partners' capital contribution, except as AIMCO Operating Partnership's debts and provided by applicable law. obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-76 2266 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must manage and control your partnership, generally requires a general partner of a its business and affairs to the best of Delaware limited partnership to adhere to their abilities and use their best efforts fiduciary duty standards under which it owes to carry out the business of your its limited partners the highest duties of partnership. The general partner must devote good faith, fairness and loyalty and which itself to the business of your partnership generally prohibit such general partner from to the extent that it, in its discretion, taking any action or engaging in any deem necessary for the efficient carrying on transaction as to which it has a conflict of thereof. The general partner must act as a interest. The AIMCO Operating Partnership fiduciary with respect to the safekeeping Agreement expressly authorizes the general and use of the funds and assets of your partner to enter into, on behalf of the partnership. However, the partners may AIMCO Operating Partnership, a right of engage in whatever activities they choose, first opportunity arrangement and other whether or not it is in competition with conflict avoidance agreements with various your partnership, without having or affiliates of the AIMCO Operating incurring any obligation to offer any Partnership and the general partner, on such interest in such activities to your partner- terms as the general partner, in its sole ship and the partners and your partnership and absolute discretion, believes are and the partners will have no rights in or advisable. The AIMCO Operating Partnership to such independent business ventures or the Agreement expressly limits the liability of income and profits derived therefrom. the general partner by providing that the general partner, and its officers and In general, your partnership's agreement of directors will not be liable or accountable limited partnership and the AIMCO Operating in damages to the AIMCO Operating Partnership Agreement have limitations on Partnership, the limited partners or as- the liability of the general partner but signees for errors in judgment or mistakes such limitations differ and provide more of fact or law or of any act or omission if protection for the general partner of the the general partner or such director or AIMCO Operating Partnership. officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the
S-77 2267 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating
S-78 2268 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units and the have the same voting rights as certain amendments and consent of the general as holders of the Common OP termination of the AIMCO partners, the limited Units. See "Description of Operating Partnership partners may amend your OP Units" in the accompany- Agreement and certain partnership's agreement of ing Prospectus. So long as transactions such as the limited partnership, any Preferred OP Units are institution of bankruptcy dissolve and terminate your outstanding, in addition to proceedings, an assignment partnership; remove a any other vote or consent of for the benefit of creditors general partner for cause partners required by law or and certain transfers by the without the consent of the by the AIMCO Operating general partner of its general partner; change the Partnership Agreement, the interest in the AIMCO nature of your partnership's affirmative vote or consent Operating Partnership or the business and approve or of holders of at least 50% admission of a successor disapprove the sale of all of the outstanding Preferred general partner. or substantially all of the OP Units will be necessary assets of your partnership. for effecting any amendment Under the AIMCO Operating The election of a substitute of any of the provisions of Partnership Agreement, the general partner requires the the Partnership Unit general partner has the approval of all of the Designation of the Preferred power to effect the limited partners. OP Units that materially and acquisition, sale, transfer, adversely affects the rights exchange or other The general partner may or preferences of the disposition of any assets of cause the dissolution of holders of the Preferred OP the AIMCO Operating your partnership by retiring Units. The creation or Partnership (including, but when there is no remaining issuance of any class or not limited to, the exercise general partner unless all series of partnership units, or grant of any conversion, of the limited partners including, without option, privilege or elect a substitute general limitation, any partner- subscription right or any partner within 90 days after ship units that may have other right available in the retirement of the rights senior or superior to connection with any assets general partner. the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) In general, you have greater materially adversely affect or the merger, voting rights in your the rights or preferences of consolidation, partnership than you will the holders of Preferred OP reorganization or other have as an OP Unitholder. OP Units. With respect to the combination of the AIMCO Unitholders cannot remove exercise of the above Operating Partnership with the general partner of the described voting rights, or into another entity, all AIMCO Operating Partnership. each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi-
S-79 2269 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. The quarterly cash distributions to distribute quarterly all, general partner makes at the rate of $0.50 per or such portion as the distributions from Available Preferred OP Unit; provided, general partner may in its Cash Flow quarterly within however, that at any time sole and absolute discretion 45 days after the end of and from time to time on or determine, of Available Cash such quarter or at such time after the fifth anniversary (as defined in the AIMCO or times as the general of the issue date of the Operating Partnership partner deems practicable. Preferred OP Units, the Agreement) generated by the The distributions payable to AIMCO Operating Partnership AIMCO Operating Partnership the partners are not fixed may adjust the annual during such quarter to the in amount and depend upon distribution rate on the general partner, the special the operating results and Preferred OP Units to the limited partner and the net sales or refinancing lower of (i) 2.00% plus the holders of Common OP Units proceeds available from the annual interest rate then on the record date es- disposition of your applicable to U.S. Treasury tablished by the general partnership's assets. notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Pre- Cumulative Preferred
S-80 2270 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock. Such distributions ferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such and the Pre- Oper-
S-81 2271 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS transferee will be ferred OP Units are not ating Partnership Agreement substituted in place of the listed on any securities restricts the transferor if (1) such sale exchange. The Preferred OP transferability of the OP is not of a fraction of a Units are subject to Units. Until the expiration unit, except in limited restrictions on transfer as of one year from the date on circumstances, (2) the set forth in the AIMCO which an OP Unitholder transfer and transferee Operating Partnership acquired OP Units, subject execute, acknowledge and Agreement. to certain exceptions, such deliver to the general OP Unitholder may not partner an instrument Pursuant to the AIMCO transfer all or any por- evidencing the transfer, (3) Operating Partnership tion of its OP Units to any the transferor pays a Agreement, until the transferee without the transfer fee, (4) the expiration of one year from consent of the general general partner consents to the date on which a holder partner, which consent may such transfer in writing, of Preferred OP Units be withheld in its sole and which consent will not be acquired Preferred OP Units, absolute discretion. After granted if such transfer subject to certain the expiration of one year, would: (a) result in the exceptions, such holder of such OP Unitholder has the termination of your partner- Preferred OP Units may not right to transfer all or any ship for tax purposes, transfer all or any portion portion of its OP Units to result in your partnership of its Preferred OP Units to any person, subject to the being taxed as an any transferee without the satisfaction of certain con- association, (b) violate any consent of the general ditions specified in the applicable securities laws, partner, which consent may AIMCO Operating Partnership (c) reduce the depreciation be withheld in its sole and Agreement, including the available to other partner absolute discretion. After general partner's right of or (d) the units would not the expiration of one year, first refusal. See be a suitable investment for such holders of Preferred OP "Description of OP Units -- the transferee and (5) the Units has the right to Transfers and Withdrawals" assignor and assignee have transfer all or any portion in the accompanying complied with such other of its Preferred OP Units to Prospectus. conditions as set forth in any person, subject to the your partnership's agreement satisfaction of certain After the first anniversary of limited partnership. conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP There are no redemption ship Agreement, including Unitholder has the right, rights associated with your the general partner's right subject to the terms and units. of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred elect to cause AIMCO to
S-82 2272 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 2273 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 2274 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 2275 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 2276 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 2277 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 2278 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 2279 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 2280 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 2281 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 2282 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $67,256 in 1996, $67,076 in 1997 and $38,271 in 1998. The property manager received management fees of $104,498 in 1996, $111,851 in 1997 and $110,364 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 2283 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $631,998 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and 01.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 2284 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Lake Eden, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 2285 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 2286 LAKE EDEN, LIMITED CONDENSED BALANCED SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 92,323 Other assets................................................ 725,804 Investment property......................................... Land...................................................... $ 517,000 Building and related personal property.................... 8,454,915 ----------- 8,971,915 Less: Accumulated depreciation............................ (6,137,026) 2,834,889 ----------- ----------- Total assets...................................... $ 3,653,016 =========== LIABILITIES AND PARTNERS' CAPITAL Other accrued liabilities................................... $ 249,322 Notes payable............................................... 6,954,603 Partners' deficit................................. (3,550,909) ----------- Total liabilities and partners' deficit........... $ 3,653,016 ===========
See Accompanying Notes to Financial Statements. F-2 2287 LAKE EDEN, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- Revenues: Rental income............................................. $1,529,692 $1,573,351 Other income.............................................. 113,684 108,143 ---------- ---------- Total revenues.................................... 1,643,376 1,681,494 Expenses: Operating expenses........................................ 799,574 798,673 Depreciation expense...................................... 145,293 145,293 Interest expense.......................................... 431,020 443,508 Property tax expense...................................... 128,056 129,315 ---------- ---------- Total expenses.................................... 1,503,943 1,516,789 Net income........................................ $ 139,433 $ 164,705 ========== ==========
See Accompanying Notes to Financial Statements. F-3 2288 LAKE EDEN, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ----------- ----------- Operating activities: Net income................................................ $ 139,433 $ 164,705 Adjustments to reconcile net income (loss) to net cash provided by operating activities................................ Depreciation and amortization............................. 158,528 158,528 Changes in accounts: Receivables and deposits and other assets.............. 16,859 45,803 Accounts payable and accrued expenses.................. (228,369) (81,628) --------- --------- Net cash provided by (used in) operating activities...................................... 86,451 287,408 --------- --------- Investing activities: Property improvements and replacements.................... (123,989) (120,274) --------- --------- Net cash provided by (used in) investing activities....... (123,989) (120,274) --------- --------- Financing activities: Payments on mortgage...................................... (147,029) (160,194) Partners' distributions................................... (50,000) (63,387) --------- --------- Net cash provided by (used in) financing activities....... (197,029) (223,581) --------- --------- Net increase (decrease) in cash and cash equivalents...... (234,567) (56,447) Cash and cash equivalents at beginning of period.......... 326,890 431,733 --------- --------- Cash and cash equivalents at end of period................ $ 92,323 $ 375,286 ========= =========
See Accompanying Notes to Financial Statements. F-4 2289 LAKE EDEN, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Lake Eden, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 2290 LAKE EDEN, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2291 INDEPENDENT AUDITORS' REPORT General Partners Lake Eden, Limited: We have audited the accompanying balance sheets of Lake Eden, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lake Eden, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 17, 1998 F-7 2292 LAKE EDEN, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 326,890 $ 431,733 Receivable and deposits..................................... 200,964 149,984 Restricted escrows (Note B)................................. 412,092 395,154 Other assets................................................ 129,607 140,231 Investment properties (Note C): Land...................................................... 517,000 517,000 Buildings and related personal property................... 8,330,926 7,989,837 ----------- ----------- 8,847,926 8,506,837 Less accumulated depreciation............................... (5,991,733) (5,798,010) ----------- ----------- 2,856,193 2,708,827 ----------- ----------- $ 3,925,746 $ 3,825,929 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 204,144 $ 138,257 Tenant security deposit liabilities....................... 62,794 58,782 Accrued taxes............................................. 162,611 163,042 Other liabilities......................................... 48,142 50,308 Mortgage notes payable (Note C)........................... 7,088,397 7,245,235 Partners' deficit........................................... (3,640,342) (3,829,695) ----------- ----------- $ 3,925,746 $ 3,825,929 =========== ===========
See Accompanying Notes to Financial Statements. F-8 2293 LAKE EDEN, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 2,112,517 $ 2,003,086 Other income.............................................. 137,164 112,168 ----------- ----------- Total revenues......................................... 2,249,681 2,115,254 ----------- ----------- Expenses: Operating (Note D)........................................ 927,690 999,362 General and administrative (Note D)....................... 59,886 59,403 Depreciation.............................................. 193,723 179,399 Interest.................................................. 652,111 664,592 Property taxes............................................ 163,531 164,008 ----------- ----------- Total expenses......................................... 1,996,941 2,066,764 ----------- ----------- Net income.................................................. 252,740 48,490 Distributions to partners................................... (63,387) (92,300) Partners' deficit at beginning of year...................... (3,829,695) (3,785,885) ----------- ----------- Partners' deficit at end of year............................ $(3,640,342) $(3,829,695) =========== ===========
See Accompanying Notes to Financial Statements. F-9 2294 LAKE EDEN, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 --------- --------- Cash flows from operating activities: Net income................................................ $ 252,740 $ 48,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 193,723 179,399 Amortization of discounts and loan costs............... 80,450 77,975 Change in accounts: Receivable and deposits.............................. (50,980) 70,925 Other assets......................................... (13,072) -- Accounts payable..................................... 65,887 87,068 Tenant security deposit liabilities.................. 4,012 (1,408) Accrued taxes........................................ (431) (160) Other liabilities.................................... (2,166) (49,953) --------- --------- Net cash provided by operating activities......... 530,163 412,336 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (341,089) (129,285) Net (deposits to) receipts from restricted escrows........ (16,938) 2,903 --------- --------- Net cash used in investing activities............. (358,027) (126,382) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (213,592) (198,007) Distributions to partners................................. (63,387) (92,300) --------- --------- Net cash used in financing activities............. (276,979) (290,307) --------- --------- Net decrease in cash and cash equivalents................... (104,843) (4,353) Cash and cash equivalents at beginning of year.............. 431,733 436,086 --------- --------- Cash and cash equivalents at end of year.................... $ 326,890 $ 431,733 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 571,661 $ 587,825 ========= =========
See Accompanying Notes to Financial Statements. F-10 2295 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Lake Eden, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 11, 1985. The Partnership owns and operates a 387 unit apartment residential complex, Lake Eden/Lebanon Station Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $116,535 and $140,231, respectively, which are amortized over the term of the related borrowing. They are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 2296 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... $412,092 $395,154 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $63,853, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,155,401 $7,368,993 Second mortgage note payable in interest only monthly installments of $1,585, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 250,216 250,216 ---------- ---------- Principal balance at year end............................... 7,405,617 7,619,209 Less unamortized discount................................... (317,220) (373,974) ---------- ---------- $7,088,397 $7,245,235 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 230,402 1999..................................................... 248,535 2000..................................................... 268,096 2001..................................................... 289,196 2002..................................................... 6,369,388 ---------- $7,405,617 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 2297 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- -------- -------- Management fee......................................... $111,851 $104,498 Partnership administration fee......................... $ 20,469 $ 20,840 Reimbursement for services of affiliates............... $ 31,607 $ 30,763 Construction oversight costs........................... $ 15,000 $ 15,653
F-13 2298 LAKE EDEN, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2299 INDEPENDENT AUDITORS' REPORT General Partners Lake Eden, Limited: We have audited the accompanying balance sheets of Lake Eden, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lake Eden, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 25, 1997 F-15 2300 LAKE EDEN, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 431,733 $ 436,086 Restricted -- tenant security deposits.................... 58,782 62,394 Accounts receivable......................................... 4,732 5,835 Escrow for taxes............................................ 86,470 152,680 Restricted escrows (Note B)................................. 395,154 398,057 Other assets................................................ 140,231 163,927 Investment properties (Note C): Land...................................................... 517,000 517,000 Buildings and related personal property................... 7,989,837 7,860,553 ----------- ----------- 8,506,837 8,377,553 Less accumulated depreciation............................. (5,798,010) (5,618,612) ----------- ----------- 2,708,827 2,758,941 ----------- ----------- $ 3,825,929 $ 3,977,920 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 138,257 $ 51,189 Tenant security deposits.................................. 58,782 60,190 Accrued taxes............................................. 163,042 163,202 Other liabilities......................................... 50,308 100,261 Mortgage notes payable (Note C)........................... 7,245,235 7,388,963 Partners' deficit........................................... (3,829,695) (3,785,885) ----------- ----------- $ 3,825,929 $ 3,977,920 =========== ===========
See Accompanying Notes to Financial Statements. F-16 2301 LAKE EDEN, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 2,003,086 $ 1,952,779 Other income.............................................. 112,168 122,979 ----------- ----------- Total revenues......................................... 2,115,254 2,075,758 ----------- ----------- Expenses: Operating (Note D)........................................ 675,927 666,596 General and administrative (Note D)....................... 59,403 56,641 Maintenance............................................... 323,435 173,970 Depreciation.............................................. 179,399 193,531 Interest.................................................. 664,592 676,651 Property taxes............................................ 164,008 164,221 ----------- ----------- Total expenses......................................... 2,066,764 1,931,610 ----------- ----------- Net income.................................................. 48,490 144,148 Distributions to partners................................... (92,300) (37,887) Partners' deficit at beginning of year...................... (3,785,885) (3,892,146) ----------- ----------- Partners' deficit at end of year............................ $(3,829,695) $(3,785,885) =========== ===========
See Accompanying Notes to Financial Statements. F-17 2302 LAKE EDEN, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 48,490 $ 144,148 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 179,399 193,531 Amortization of discounts and loan costs............... 77,975 75,540 Change in accounts: Restricted cash...................................... 3,612 539 Accounts receivable.................................. 1,103 (3,401) Escrow for taxes..................................... 66,210 214,247 Accounts payable..................................... 87,068 14,556 Tenant security deposit liabilities.................. (1,408) (5,166) Accrued taxes........................................ (160) 226 Other liabilities.................................... (49,953) 22,568 --------- --------- Net cash provided by operating activities......... 412,336 656,788 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (129,285) (149,804) Deposits to restricted escrows............................ (16,798) (16,503) Receipts from restricted escrows.......................... 19,701 24,153 --------- --------- Net cash used in investing activities............. (126,382) (142,154) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (198,007) (183,560) Distributions to partners................................. (92,300) (37,887) --------- --------- Net cash used in financing activities............. (290,307) 221,447 --------- --------- Net (decrease) increase in cash and cash equivalents........ (4,353) 293,187 Cash and cash equivalents at beginning of year.............. 436,086 142,899 --------- --------- Cash and cash equivalents at end of year.................... $ 431,733 $ 436,086 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 587,825 $ 601,692 ========= =========
See Accompanying Notes to Financial Statements. F-18 2303 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Lake Eden, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 11, 1985. The Partnership owns and operates a 387 unit apartment residential complex, Lake Eden/Lebanon Station Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-19 2304 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ $395,154 $398,057 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $63,853, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,368,993 $7,567,000 Second mortgage note payable in interest only monthly installments of $1,585, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 250,216 250,216 ---------- ---------- Principal balance at year end............................... 7,619,209 7,817,216 Less unamortized discount................................... (373,974) (428,253) ---------- ---------- $7,245,235 $7,388,963 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 213,591 1998..................................................... 230,402 1999..................................................... 248,535 2000..................................................... 268,096 2001..................................................... 289,196 Thereafter............................................... 6,369,389 ---------- $7,619,209 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-20 2305 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- -------- -------- Management fee......................................... $104,498 $103,202 Partnership administration fee......................... $ 20,840 $ 20,583 Reimbursement for services of affiliates............... $ 30,763 $ 28,725 Construction oversight fee............................. $ 15,653 $ 2,296
F-21 2306 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 2307 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 2308 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 2309 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 2310 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 2311 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 2312 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 2313 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 2314 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 2315 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 2316 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 2317 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 2318 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 2319 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 2320 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 2321 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 2322 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 2323 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 2324 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 2325 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 2326 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 2327 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 2328 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 2329 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 2330 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 2331 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 2332 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 2333
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 2334 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 2335
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 2336 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 2337 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 2338 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 2339
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 2340 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 2341 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 2342 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 2343
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 2344 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 2345 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 2346 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2347 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2348 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2349 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2350 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2351 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2352 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2353 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2354 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2355 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2356 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Lake Eden Limited Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Lake Eden Limited (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $71,211 in cash, or 1,840.75 Common OP Units of the Purchaser, or 2,848.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997 and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 2357 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2358 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2359 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2360
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2361
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2362
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2363
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2364 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2365 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Landmark Associates, Ltd. in exchange for your choice of: 6.75 of our 8.0% Class Two Partnership Preferred Units; 4.50 of our Partnership Common Units; or $168 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $168 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2366 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Landmark Associates, Ltd............................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25
PAGE ----- Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Review of Appraisal.......................... S-44 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51
i 2367
PAGE ----- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 Overview..................................... S-52 Results of Operations........................ S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59 Extension of Tender Period; Termination; Amendment.................................. S-59 Prorations................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70
PAGE ----- COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85 Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2368 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In October 1997, an independent appraiser valued the property on an unencumbered basis to be $3,800,000. We estimate your property to be worth $2,800,000, less approximately $396,220 of deferred maintenance and investment. Therefore, it is S-1 2369 possible, that the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 2370 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000 based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2025 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-3 2371 is equivalent to distributions of $13.50 per year on the number of Preferred OP Units, or distributions of $11.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $434 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 2372 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,291,973 of balloon payments due on its mortgage debt in January 2004. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 2373 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in January 2004 and require balloon payments of $2,291,973. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 2374 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $434 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $13.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $434 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $11.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 2375 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2376 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 decreased compared to 1997, we further revised the capitalization rate upward by approximately 1.58%, resulting in a final capitalization rate of 12.08%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 338,000 Capitalization rate......................................... 12.08% ----------- Gross valuation of partnership property..................... $ 2,800,000 Plus: Cash and cash equivalents............................. 205,376 Plus: Other partnership assets, net of security deposits.... 191,859 Less: Mortgage debt, including accrued interest............. (2,500,000) Less: Accounts payable and accrued expenses................. (14,337) Less: Other liabilities..................................... (26,936) ----------- Partnership valuation before taxes and certain costs........ 655,962 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (396,220) Less: Closing costs......................................... (70,000) ----------- Estimates net valuation of your partnership................. 189,742 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 189,742 Total number of units............................. 1,132.0 ----------- Estimated valuation per unit................................ 168 =========== Cash consideration per unit................................. $ 168 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $168 by the $25 liquidation preference of each Preferred OP Unit to get 6.75 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $168 by a price of $38.69 to get 4.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 2377 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; - the net book value of your partnership; and - recent appraisals for the property for $3,800,000, which appraisals did not take into account the mortgages, other assets and liabilities, costs of sale of the property and over $396,000 of deferred maintenance of the property. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT --------- Cash offer consideration.................................... $ 168 Partnership Preferred Units................................. $ 168 Partnership Common Units.................................... $ 168 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 168 Estimated going concern value............................. $ 124 Alternative going concern value(1)........................ $ 164 Net book value (deficit).................................. $ (881)
- --------------- (1) Assumes sale of property when balloon payment is due instead of refinancing the mortgage. S-10 2378 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Landmark Associates, Ltd. is a Tennessee limited partnership which was formed on July 30, 1982 for the purpose of owning and operating a single apartment property located in Florence, South Carolina, known as "Landmark Woods Apartments." Your partnership's property consists of 104 apartment units and was built in 1974. Your partnership has no employees. As of September 30, 1998, there were 1,132 units of limited partnership interest issued and outstanding, which were held of record by 35 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,132,000 of limited partnership units in 1982. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $434 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in 2025, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,475,991, payable to State Street and Lehman which bears interest at the rate of 7.29%. The mortgage debt is due in January 2004. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 2379 THE OFFER In exchange for each of your units, we are offering you a choice of: - 6.75 of our Class Two Partnership Preferred Units; - 4.50 of our Partnership Common Units; or - $168 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 1,132 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 6.75 Preferred OP Units, 4.50 Common OP Units, or $168 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 2380 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 2381 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $168 in cash, 6.75 Preferred OP Units or 4.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 2382 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $168. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $15,067 for the fiscal year ended December 31, 1998. The property manager received management fees of $32,460 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $47,544 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 2383 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2384
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2385 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2386
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2387 SUMMARY FINANCIAL INFORMATION OF LANDMARK ASSOCIATES, LTD. The summary financial information of Landmark Associates, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Landmark Associates, Ltd. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is derived from audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." LANDMARK ASSOCIATES, LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ----------- ---------- ---------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues................. $ 485,902 $ 538,140 $ 704,178 $ 734,931 $ 708,848 $ 648,266 $ 627,563 Net Income..................... 55,211 98,968 77,802 91,366 70,024 91,415 67,481 Net Income per limited partnership unit............. 48.29 86.55 67.87 79.90 61.24 79.95 59.02 Distributions per limited partnership unit............. 262.63 -- -- 87.45 -- 78.78 -- Distributions per limited partnership unit (which represent a return of capital)..................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------ ------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ----------- ---------- ---------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents...... $ 167,638 $ 268,586 $ 504,366 $ 200,292 $ 264,176 $ 214,854 $ 218,637 Real Estate, Net of Accumulated Depreciation................. 805,331 786,393 776,688 803,479 812,164 834,210 858,854 Total Assets................... 1,287,483 1,191,753 1,559,097 1,125,783 1,161,956 1,104,435 1,178,188 Notes Payable.................. 2,482,254 2,104,815 2,500,000 2,124,870 2,157,776 2,203,091 2,243,348 General Partners' Capital/ (Deficit).................... (1,242,221) (976,066) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,462) Limited Partners' Capital/ (Deficit).................... -- -- -- -- -- -- -- Partners' Deficit.............. (1,242,221) (976,066) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,482) Total Distributions............ 300,000 -- -- 100,000 -- 90,080 -- Book value per limited partnership unit............. -- -- -- -- -- -- -- Net increase (decrease) in cash and cash equivalents......... (336,727) 50,316 304,074 (63,884) 49,322 8,882 40,826 Net cash provided by operating activities................... 65,030 100,866 128,743 115,358 109,718 154,373 114,124 Ratio of earnings to fixed charges...................... 1.39/1 1.71/1 1.46/1 1.48/1 1.38/1 1.66/1 1.47/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO LANDMARK OPERATING ASSOCIATES, PARTNERSHIP LTD. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $11.25 $434 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $13.50 $434
S-20 2388 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 2389 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In October 1997, an independent appraiser valued the property on an unencumbered basis to be $3,800,000. We estimate your property to be worth $2,800,000 although we believe the property needs approximately $396,220 of deferred maintenance and investment not considered by the appraiser. Therefore, it is possible, that the sale of the property could result in you receiving more pretax cash per unit than our offer and you would receive more than our offer if the property was actually sold for any of such estimated amounts. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your S-22 2390 units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur S-23 2391 from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2025 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. S-24 2392 POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $13.50 per year on the number of Preferred OP Units, or distributions of $11.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $434 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 2393 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,291,973 of balloon payments due on its mortgage debt in January 2004. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 2394 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest, consisting of no limited partnership interest and a 1% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 2395 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 2396 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in January 2004 and require balloon payments totaling $2,291,973. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the property or refinance its indebtedness in 2004 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only S-29 2397 Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's properties would require a vote of the limited partners owning a majority of the outstanding units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 2398 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $434 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $13.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $434 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $11.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 2399 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 decreased compared to 1997, we further revised the capitalization rate upward by approximately 1.58%, resulting in a final capitalization rate of 12.08%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by S-32 2400 us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $338,300 12.08% $2,800,000
- --------------- (1) The total net operating income is equal to total revenues of $691,378, less total expenses of $321,878 and recurring replacement costs of $31,200 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $189,742. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 338,000 Capitalization rate......................................... 12.08% ----------- Gross valuation of partnership property..................... 2,800,000 Plus: Cash and cash equivalents............................. 205,376 Plus: Other partnership assets, net of security deposits.... 191,859 Less: Mortgage debt, including accrued interest............. (2,500,000) Less: Accounts payable and accrued expenses................. (14,337) Less: Other liabilities..................................... (26,936) ----------- Partnership valuation before taxes and certain costs........ 655,962 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (396,220) Less: Closing costs......................................... (70,000) ----------- Estimated net valuation of your partnership................. 189,742 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 189,742 Total number of units............................. 1,132.0 ----------- Estimated valuation per unit................................ 168 =========== Cash consideration per unit................................. 168 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $168 by the $25 liquidation preference of each Preferred OP Unit to get 6.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $168 by a price of $38.69 to get 4.50 Common OP Units per S-33 2401 unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $189,742 or 0.03% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $98,968 for the nine months ended September 30, 1997 to $55,211 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. S-34 2402 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $168, based on a total estimated value of your partnership's property of $2,800,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $13.50 per year on the number of Preferred OP Units, or distributions of $11.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $434. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. S-35 2403 The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 2404 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2025, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 168 Partnership preferred units................................. 168(1) Partnership common units.................................... 168(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 168 Estimated going concern value............................. $ 124 Net book value............................................ $ (881) Alternative going concern value........................... $ 164(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Appraisals Your partnership's property was appraised in 1997 by an independent third party appraiser, Koeppel Joseph J. Blake & Associates, Inc. (the "Appraiser"). Such appraisal was not prepared in connection with the offer. According to the appraisal reports, the scope of the appraisals included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice, and in compliance with the Appraisal Standards set forth in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (known as "FIRREA"). The estimated market value of the fee simple estate was $3,800,000. The total appraised value of the property is $3,800,000 and was not brought down to a per unit basis by us since such appraisal does not reflect the mortgage encumbering the property of $2,475,991 (including interest), other assets and liabilities of the partnership or any costs of sales of the property as reflected in "Valuation of Units." However, using the appraisal amount instead of the "estimated gross valuation of your S-37 2405 partnership's property" in the table in the "Valuation of Units" would result in a higher amount per unit than our offer. We believe that, based on the condition of the property, the appraisals substantially overstate its value. The appraisals did not take into account the deferred maintenance costs of the partnership's property. Therefore, we believe that the appraisals are less meaningful in assessing the fairness of our offer consideration than the analysis described above under "Valuation of Units." On this basis, we believe that our offer consideration is fair in relation to such appraisal amounts. The Appraiser performed the real estate appraisals in the normal course of its business and the executive officers who rendered the report are members of the Appraisal Institute. No limitations were imposed on the Appraiser by the general partner. A copy of the appraisals may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $2,500 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an S-38 2406 independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 40% reflecting real estate risk and the relatively high level of leverage in excess of 85% of real estate value. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $124 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in January 2004. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $164 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $881 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $200 per unit, going concern value of $94 per unit and liquidation value of $137 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices. An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO S-39 2407 Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration that the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $32, $(74) and $(31). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the S-40 2408 assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
LANDMARK WOODS --------- Total Revenues.............................................. $ 715,831 Operating Expenses.......................................... (336,607) Replacement Reserves -- Net................................. (90,845) Debt Service................................................ (205,468) Capital Expenditures........................................ (61,100) --------- Net Cash Flow..................................... $ 21,811 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your S-41 2409 partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 12.08%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $396,220. Stanger observed that your partnership liquidation value of $189,742 was divided by the total units outstanding of 1,132 to provide the liquidation value per unit of $168. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of S-42 2410 operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $338,300 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $35,000 per annum; (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first and (iii) cash reserves. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the property was assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 12.58%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 40%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 14.6%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 1,132 to achieve management's estimate of going concern value of $124 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership results. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $168 per unit is equal to management's estimate of liquidation value, and reflects a 35% premium to management's estimate of going concern value of $124. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 40% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. S-43 2411 The 40% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 85% of value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $200, $94, and $137 representing premiums (discounts) to the offer price of 19%, (44%) and (18%.) See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." REVIEW OF APPRAISAL Stanger observed that an appraisal was prepared by Joseph J. Blake and Associates Inc as of September 15, 1997 for the purpose of estimating the market value of the fee simple interest in the property. Stanger observed that the appraiser estimated the market value of the property at 3,800,000 based upon the income and sales comparison approach to value. In the sales comparison approach, the appraiser identified three sales with a range of value per apartment unit of $25,300 to $27,500 with an average of $26,300 per unit. An additional sales comparable with a value per unit of 47,700 was also identified by the appraiser and considered superior to the property since it was built in 1991. Stanger observed that the appraiser utilized a value per apartment unit of $35,000 in the sales comparable analysis. Stanger observed that the income approach to value in the appraisal was based upon net operating income (after replacement reserve of $250 per unit) of 366,768 and a capitalization rate of 9.75% resulting in a value of $3,800,000. Stanger observed that annualized 1998 net operating income for the nine months ended September 30, 1998 was approximately 319,000 after a $250 replacement reserve. Stanger further observed that our gross property value is $2,800,000 or $26,923 per unit. Stanger observed that such value per unit is consistent with the value per unit in the comparables identified by the appraiser. Stanger advised us that in rendering its opinion, Stanger considered the appraisal. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also S-44 2412 relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed S-45 2413 transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Landmark Associates, Ltd., is a Tennessee limited partnership which completed a private offering in 1982. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 35 limited partners of your partnership and a total of 1,132 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 30, 1982 for the purpose of owning an apartment property located in Florence, South Carolina, known as "Landmark Woods Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1974 consists of 104 apartment units. There are 24 one-bedroom apartments, 55 two-bedroom apartments and 25 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 90.07% in 1998, 96.15% in 1997 and 96.15% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that your partnership's property needs deferred maintenance of $396,220 primarily for driveway and parking lots, landscaping and irrigation, electrical and pool repair. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-progress analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Budgeted renovations or improvements for 1999 total $396,220 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $490 $500 $508 $500 $488
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $33,980 of $135,380 of assessed valuation with a current yearly tax rate of 25.10%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 25.60% of such improvements. S-46 2414 PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2025 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 90% and $472, respectively, at December 31, 1998, compared to 96% and $490, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy and rental rates to improve in the near future because of proposed improvements. In addition, the general partner noted that it expects to spend approximately $396,220 for capital improvements at the property in 1999 to repair and improve the property's amenities and exterior improvements as detailed in the attached report from Adjusters International. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. S-47 2415 CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,475,991, payable to State Street and Lehman, which bears interest at a rate of 7.29%. The mortgage debt is due in January 2004. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,132,000 of limited partnership units in 1982 for $1,000 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2025, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners will not liable to your partnership or limited partners because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. S-48 2416 Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates for any acts or omissions performed by them on behalf of your partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $1,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 80 902 0 22,520 1995................................... 0 0 0 0 1996................................... 88 1,000 0 24,998 1997................................... 0 0 0 0 1998................................... 265 1,007 0 75,000 ---- ------ -- -------- Total........................ $433 $2,909 $0 $122,518
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership, including 0 limited partner units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 2417 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $18,388 1995........................................................ 25,337 1996........................................................ 21,026 1997........................................................ 21,565 1998........................................................ 15,067
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES - ---- ------- Not 1994........................................................ available 1995........................................................ $34,897 1996........................................................ 35,967 1997........................................................ 35,112 1998........................................................ 32,461
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 2418 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 167,639 $ 268,586 $ 504,366 $ 200,292 $ 264,176 $ 214,854 $ 218,637 Land & Building............... 2,934,151 2,860,012 2,864,107 2,835,697 2,789,354 2,761,024 2,747,351 Accumulated Depreciation...... (2,128,820) (2,073,619) (2,087,419) (2,032,218) (1,977,200) (1,926,814) (1,878,497) Other Assets.................. 314,513 136,774 278,043 104,034 71,648 40,886 85,675 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 1,287,483 $ 1,191,753 $ 1,559,097 $ 1,125,783 $ 1,161,956 $ 1,104,435 $ 1,176,166 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 2,482,254 $ 2,104,615 $ 2,500,000 $ 2,124,870 $ 2,157,776 $ 2,189,842 $ 2,243,348 Other Liabilities............. 47,450 63,204 56,225 75,643 70,283 37,471 70,280 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 2,529,704 $ 2,167,819 $ 2,556,225 $ 2,200,513 $ 2,226,059 $ 2,240,562 $ 2,313,628 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit...... $(1,242,221) $ (976,066) $ (987,128) $(1,074,730) $(1,066,103) $(1,136,127) $(1,137,462) =========== =========== =========== =========== =========== =========== ===========
LANDMARK ASSOCIATES, L.P. ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $ 439,609 $ 469,637 $ 611,308 $ 623,834 $ 633,965 $ 623,840 $ 608,803 Other Income................... 46,293 69,503 92,870 111,097 74,884 24,426 18,760 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $ 485,902 $ 539,140 $ 704,178 $ 734,931 $ 708,849 $ 648,266 $ 627,563 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 210,360 $ 225,795 $ 324,653 $ 347,015 $ 338,974 $ 303,674 $ 281,912 General & Administrative....... 19,878 16,520 28,080 27,925 40,473 36,068 53,825 Depreciation................... 41,401 41,401 55,201 55,018 50,386 48,317 46,643 Interest Expense............... 142,303 139,734 186,029 192,115 184,269 149,817 144,231 Property Taxes................. 16,749 16,722 21,659 21,492 24,723 29,782 33,471 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $ 430,691 $ 440,172 $ 617,622 $ 643,565 $ 638,825 $ 556,851 $ 580,082 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income before extraordinary items........................ $ 55,211 $ 98,968 $ 86,556 $ 91,366 $ 70,024 $ 91,415 $ 67,481 Extraordinary Items............ -- -- (8,954) -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income..................... $ 55,211 $ 98,968 $ 77,802 $ 91,366 $ 70,024 $ 91,415 $ 57,481 ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 48.29 $ 86.55 $ 67.87 $ 79.90 $ 61.24 $ 79.95 $ 59.02 ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ 262.63 $ -- $ -- $ 87.45 $ -- $ 75.75 $ -- ========== ========== ========== ========== ========== ========== ==========
S-51 2419 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $55,000 for the nine months ended September 30, 1998, compared to $99,000 for the nine months ended September 30, 1997. The decrease in net income of $44,000 was primarily the result of a decrease in revenues, partially off-set by a slight decrease in operating expense. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $486,000 for the nine months ended September 30, 1998, compared to $539,000 for the nine months ended September 30, 1997, a decrease of $53,000, or 9.8%. The Partnership was forced to decrease rental rates by an average of 2%; in addition, occupancy decreased 1% to 89%. The decrease in Other Income of $23,000 was due primarily to lower corporate units, lease cancellation fees and application fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $210,000 for the nine months ended September 30, 1998, compared to $226,000 for the nine months ended September 30, 1997, a decrease of $16,000. This decrease is due primarily to lower salary expenses for on-site property management personnel. Partnership Property management expenses totaled $24,000 for the nine months ended September 30, 1998, compared to $27,000 for the nine months ended September 30, 1997, a decrease of $3,000. General and administrative expenses increased $3,000 to $20,000, and interest expense increased $2,000 to $142,000. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $77,602 for the year ended December 31, 1997, compared to $91,366 for the year ended December 31, 1996. The decrease in net income of $13,764 or 15.1% was primarily the result of a decrease in rental revenue. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $704,178 for the year ended December 31, 1997, compared to $734,931 for the year ended December 31, 1996, a decrease of $30,753, or 4.2%. The decrease in revenues can be attributed to a decrease in market rent of approximately 1%, and a decrease in occupancy rates of approximately 4% to 88% in 1997. Furthermore, other income decreased due to a decrease in corporate unit income if $26,000 which was partially offset by increases in lease cancellation of $6,000. S-52 2420 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $324,653 for the year ended December 31, 1997, compared to $347,015 for the year ended December 31, 1996, a decrease of $22,362 or 6.4%. The decrease in operating expenses is primarily due to a decrease in occupancy rates of approximately 4% to 88% in 1997. Management expenses totaled $35,112 for the year ended December 31, 1997, compared to $35,967 for the year ended December 31, 1996, a decrease of $855, or 2.4%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $28,080 for the year ended December 31, 1997 compared to $27,925 for the year ended December 31, 1996, an increase of $115 or .6%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $188,029 for the year ended December 31, 1997, compared to $192,115 for the year ended December 31, 1996, a decrease of $4,086, or 2.1%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $91,366 for the year ended December 31, 1996, compared to $70,024 for the year ended December 31, 1995. The increase in net income of $21,342, or 30.5%, was primarily the result of an increase in rental revenue. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $734,931 for the year ended December 31, 1996, compared to $708,849 for the year ended December 31, 1995, an increase of $26,082, or 3.7%. The increase can be attributed to an increase in the amount of revenue generated by the corporate units. This increase was partially offset by a decrease in market rent of approximately 2%, while occupancy rates remained flat. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $347,015 for the year ended December 31, 1996, compared to $338,974 for the year ended December 31, 1995, an increase of $8,041 or 2.4%. Management expenses totaled $35,967 for the year ended December 31, 1996, compared to $34,897 for the year ended December 31, 1995, an increase of $1,070, or 3.1%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $27,925 for the year ended December 31, 1996 compared to $40,473 for the year ended December 31, 1995, a decrease of $12,548 or 31.0%. The decrease is primarily due to a reduction in reimbursements of general partner expenses, which decreased 25% over the prior year. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $192,115 for the year ended December 31, 1996, compared to $184,269 for the year ended December 31, 1995, an increase of $7,846, or 4.3%. The increase is the result of higher monthly payments, which are derived from a variable interest rate. S-53 2421 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $167,639 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $2,482,254. The mortgages require monthly payments of approximately $17,122 until 2004, at which time a balloon payment of approximately $2,325,934 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.29%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 2422 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 1,132 units of your partnership (up to 283 units) for consideration per unit of (i) 6.75 Preferred OP Units, (ii) 4.50 Common OP Units, or (iii) $168 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 2423 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 2424 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 2425 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 2426 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 2427 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 2428 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 2429 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 2430 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 2431 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 2432 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 2433 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 2434 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 2435 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 2436 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 2437 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 2438 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 2439 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Tennessee law for the as a Delaware limited partnership. The AIMCO purpose of owning and managing Landmark Operating Partnership owns interests (either Woods Apartments. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Available Cash Flow (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2025. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating purchase, hold, lease, manage and operate Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your part- partnership organized pursuant to the nership's agreement of limited partnership, Delaware Revised Uniform Limited Part- your partnership may perform all acts nership Act (as amended from time to time, necessary, advisable or convenient to the or any successor to such statute) (the business of your partnership including "Delaware Limited Partnership Act"), acquiring additional real or personal prop- provided that such business is to be erty, borrowing money and creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 2440 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interest in your partnership and AIMCO Operating Partnership for any may admit additional limited partners by partnership purpose from time to time to the selling not more than 1,132 units for cash limited partners and to other persons, and and notes to selected persons who fulfill to admit such other persons as additional the requirements set forth in your limited partners, on terms and conditions partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners and no sole discretion. The net capital action or consent is required in connection contribution need not be equal for all OP with the admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership sets forth agreements between contribute funds or other assets to its your partnership and the general partner and subsidiaries or other persons in which it certain of its affiliates for has an equity investment,
S-73 2441 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP certain services provided by these parties and such persons may borrow funds from the to your partnership including property AIMCO Operating Partnership, on terms and management services. conditions established in the sole and absolute discretion of the general partner. To the extent consistent with the business purpose of the AIMCO Operating Partnership and the permitted activities of the general partner, the AIMCO Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations on behalf of your the general partner has full power and partnership in the ordinary course of authority to borrow money on behalf of the business. Indebtedness incurred other than AIMCO Operating Partnership. The AIMCO in the ordinary course of business and that Operating Partnership has credit agreements associated with the purchase of your that restrict, among other things, its partnership's property requires the approval ability to incur indebtedness. of the holders of greater than 50% of the outstanding units. Such approval is also required for the incurrence on in- debtedness pursuant to a non-recourse loan if the creditor will acquire, at any time as a result of making the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all of the limited partners Unitholder's own expense, to obtain a at all reasonable times at the principal current list of the name and last known office of the general partner in Tennessee. business, residence or mailing address of the general partner and each other OP Unitholder.
S-74 2442 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has All management powers over the business and the exclusive right to manage and control affairs of the AIMCO Operating Partnership your partnership and its business and are vested in AIMCO-GP, Inc., which is the affairs. The general partner will have all general partner. No OP Unitholder has any the rights and powers which may be possessed right to participate in or exercise control by a general partner under applicable law or management power over the business and and such additional rights and powers which affairs of the AIMCO Operating Partner- are necessary, advisable or convenient to ship. The OP Unitholders have the right to the discharge of its duties under your vote on certain matters described under partnership's agreement of limited "Comparison of Your Units and AIMCO OP partnership. Except as otherwise provided in Units -- Voting Rights" below. The general your partnership's agreement of limited partner may not be removed by the OP partnership, limited partners may not take Unitholders with or without cause. part in nor interfere in any with the conduct or control of the business of your In addition to the powers granted a general partnership and have no right or authority partner of a limited partnership under to act for or bind your partnership. applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts performed by any of it or any failure losses sustained, liabilities incurred or to act in the absence of gross negligence or benefits not derived as a result of errors willful malfeasance. However, your in judgment or mistakes of fact or law of partnership's agreement of limited any act or omission if the general partner partnership does not provide for the acted in good faith. The AIMCO Operating indemnification of the general partner or Partnership Agreement provides for its affiliates for any acts or omissions indemnification of AIMCO, or any director or performed by them on behalf of your officer of AIMCO (in its capacity as the partnership. previous
S-75 2443 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner for cause the business and affairs of the AIMCO upon a vote of the limited partners owning a Operating Partnership. The general partner majority of the outstanding units. The may not be removed as general partner of the general partner may not transfer, assign, AIMCO Operating Partnership by the OP sell, withdraw or otherwise dispose of its Unitholders with or without cause. Under the interest unless it obtains the prior written AIMCO Operating Partnership Agreement, the consent of those persons owning more than general partner may, in its sole discretion, 50% of the units and satisfies other prevent a transferee of an OP Unit from conditions set forth in your partnership's becoming a substituted limited partner agreement of limited partnership. The pursuant to the AIMCO Operating Partnership consent of all limited partners is necessary Agreement. The general partner may exercise for the approval of a new general partner. A this right of approval to deter, delay or limited partner may not transfer his hamper attempts by persons to acquire a interests without the consent of the general controlling interest in the AIMCO Operating partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Amendments of your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the general Agreement,
S-76 2444 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners. Such proposals will be sent to the whereby the general partner may, without the limited partners together with a consent of the OP Unitholders, amend the recommendation of the general partners as to AIMCO Operating Partnership Agreement, the proposal. The general partner may amendments to the AIMCO Operating require a response within a specified time Partnership Agreement require the consent of not less than 30 days from the notice and the holders of a majority of the outstanding failure to respond will constitute a vote Common OP Units, excluding AIMCO and certain which is consistent with the general other limited exclusions (a "Majority in partners' recommendation. Approval of such Interest"). Amendments to the AIMCO proposals must be given by the limited Operating Partnership Agreement may be partners owning at least 51% of the units. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fees for its services as general its capacity as general partner of the AIMCO partner but may receive reimbursement for Operating Partnership. In addition, the expenses generated in its capacity as AIMCO Operating Partnership is responsible general partner. Moreover, the general for all expenses incurred relating to the partner or certain affiliates may be AIMCO Operating Partnership's ownership of entitled to compensation for additional its assets and the operation of the AIMCO services rendered. Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not bound by or personally liable for the personal liability for the AIMCO Operating expenses, liabilities or obligations of your Partnership's debts and obligations, and partnership in excess of the limited liability of the OP Unitholders for the partners' capital contribution, except as AIMCO Operating Partnership's debts and provided under applicable law. obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to
S-77 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-78 2445 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must manage and control your partnership, generally requires a general partner of a its business and affairs to the best of its Delaware limited partnership to adhere to ability and must use its best efforts to fiduciary duty standards under which it owes carry out the business of your partnership. its limited partners the highest duties of The general partner must devote itself to good faith, fairness and loyalty and which the business of your partnership to the generally prohibit such general partner from extent that it, in its discretion, deems taking any action or engaging in any necessary for the efficient carrying on transaction as to which it has a conflict of thereof. The general partner, at all times, interest. The AIMCO Operating Partnership has a fiduciary responsibility for the Agreement expressly authorizes the general safekeeping and use of all partnership funds partner to enter into, on behalf of the and assets. However, the partners may engage AIMCO Operating Partnership, a right of in whatever activities they choose, whether first opportunity arrangement and other or not it is in competition with your conflict avoidance agreements with various partnership, without having or incurring any affiliates of the AIMCO Operating obligation to offer any interest in such Partnership and the general partner, on such activities to your partnership and the terms as the general partner, in its sole partners and your partnership and the and absolute discretion, believes are partners will have no rights in and to such advisable. The AIMCO Operating Partnership independent business ventures or the income Agreement expressly limits the liability of and profits derived therefrom. the general partner by providing that the general partner, and its officers and In general, your partnership's agreement of directors will not be liable or accountable limited partnership and the AIMCO Operating in damages to the AIMCO Operating Partnership Agreement have limitations on Partnership, the limited partners or as- the liability of the general partner but signees for errors in judgment or mistakes such limitations differ and provide more of fact or law or of any act or omission if protection for the general partner of the the general partner or such director or AIMCO Operating Partnership. officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO
S-79 2446 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-80 2447 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may as holders of the Common OP termination of the AIMCO dissolve and terminate your Units. See "Description of Operating Partnership partnership, remove a gen- OP Units" in the accompany- Agreement and certain eral partner, approve or ing Prospectus. So long as transactions such as the disapprove the sale of all any Preferred OP Units are institution of bankruptcy or substantially all of the outstanding, in addition to proceedings, an assignment assets of your partnership any other vote or consent of for the benefit of creditors and approve the incurrence partners required by law or and certain transfers by the of certain indebtedness. The by the AIMCO Operating general partner of its consent of all of the Partnership Agreement, the interest in the AIMCO limited partners is affirmative vote or consent Operating Partnership or the necessary to elect a new of holders of at least 50% admission of a successor general partner. In order of the outstanding Preferred general partner. for the limited partners to OP Units will be necessary amend your partnership's for effecting any amendment Under the AIMCO Operating agreement of limited of any of the provisions of Partnership Agreement, the partnership, the limited the Partnership Unit general partner has the partners holding the amount Designation of the Preferred power to effect the of units specified under OP Units that materially and acquisition, sale, transfer, Tennessee law is required. adversely affects the rights exchange or other or preferences of the disposition of any assets of The general partner may holders of the Preferred OP the AIMCO Operating cause the dissolution of Units. The creation or Partnership (including, but your partnership by retiring issuance of any class or not limited to, the exercise when there is no remaining series of partnership units, or grant of any conversion, general partner unless all including, without option, privilege or of the limited partners limitation, any partner- subscription right or any elect a substitute general ship units that may have other right available in partner within 90 days after rights senior or superior to connection with any assets the retirement of the the Preferred OP Units, at any time held by the general partner. shall not be deemed to AIMCO Operating Partnership) materially adversely affect or the merger, In general, you have greater the rights or preferences of consolidation, voting rights in your the holders of Preferred OP reorganization or other partnership than you will Units. With respect to the combination of the AIMCO have as an OP Unitholder. OP exercise of the above Operating Partnership with Unitholders cannot remove described voting rights, or into another entity, all the general partner of the each Preferred OP Units without the consent of the AIMCO Operating Partnership. shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in
S-81 2448 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Available Cash at the rate of $0.50 per or such portion as the Flow (as defined in your Preferred OP Unit; provided, general partner may in its partnership's agreement of however, that at any time sole and absolute discretion limited partnership) are and from time to time on or determine, of Available Cash made in quarterly in- after the fifth anniversary (as defined in the AIMCO stallments within 45 days of the issue date of the Operating Partnership after the end of such Preferred OP Units, the Agreement) generated by the calendar quarter or at such AIMCO Operating Partnership AIMCO Operating Partnership time or times as the general may adjust the annual during such quarter to the partner may deem practi- distribution rate on the general partner, the special cal. The distributions Preferred OP Units to the limited partner and the payable to the partners are lower of (i) 2.00% plus the holders of Common OP Units not fixed in amount and annual interest rate then on the record date es- depend upon the operating applicable to U.S. Treasury tablished by the general results and net sales or notes with a maturity of partner with respect to such refinancing proceeds five years, and (ii) the quarter, in accordance with available from the annual dividend rate on the their respective interests disposition of your part- most recently issued AIMCO in the AIMCO Operating nership's assets. non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special lim- original issue. Holders of Preferred
S-82 2449 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units will not be ited partner and holders of entitled to receive any Common OP Units with respect distributions in excess of to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-83 2450 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such transferee and the Preferred OP Units Operating Partnership will be substituted in place are not listed on any Agreement restricts the of the transferor if (1) securities exchange. The transferability of the OP such sale is not of a Preferred OP Units are Units. Until the expiration fraction of a unit, except subject to restrictions on of one year from the date on in limited circumstances, transfer as set forth in the which an OP Unitholder (2) the transfer and AIMCO Operating Partnership acquired OP Units, subject transferee execute, Agreement. to certain exceptions, such acknowledge and deliver to OP Unitholder may not the general partner Pursuant to the AIMCO transfer all or any por- instruments evidencing the Operating Partnership tion of its OP Units to any transfer, (3) the transferor Agreement, until the transferee without the pays a transfer fee, (4) the expiration of one year from consent of the general general partner consents to the date on which a holder partner, which consent may such transfer in writing, of Preferred OP Units be withheld in its sole and which consent will not be acquired Preferred OP Units, absolute discretion. After granted if such transfer subject to certain the expiration of one year, will result in your exceptions, such holder of such OP Unitholder has the partnership being taxed as Preferred OP Units may not right to transfer all or any corporation or would transfer all or any portion portion of its OP Units to constitute a violation of of its Preferred OP Units to any person, subject to the any applicable securities any transferee without the satisfaction of certain con- laws and (5) the assignor consent of the general ditions specified in the and assignee have complied partner, which consent may AIMCO Operating Partnership with such other conditions be withheld in its sole and Agreement, including the as set forth in your absolute discretion. After general partner's right of partnership's agreement of the expiration of one year, first refusal. See limited partnership. such holders of Preferred OP "Description of OP Units -- Units has the right to Transfers and Withdrawals" There are no redemption transfer all or any portion in the accompanying rights associated with your of its Preferred OP Units to Prospectus. units. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-84 2451 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-85 2452 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-86 2453 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-87 2454 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-88 2455 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-89 2456 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-90 2457 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-91 2458 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-92 2459 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-93 2460 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-94 2461 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $21,026 in 1996, $21,565 in 1997 and $15,067 in 1998. The property manager received management fees of $35,967 in 1996, $35,112 in 1997 and $32,461 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-95 2462 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $47,544 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-96 2463 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Landmark Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-97 2464 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statement of Cash flow for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to the Financial Statements........................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to the Financial Statements........................... F-19
F-1 2465 LANDMARK ASSOCIATES, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 167,639 Receivables and deposits.................................... 127,169 Restricted escrows.......................................... 113,967 Other assets................................................ 73,377 Investment property: Land...................................................... $ 148,692 Building and related personal property.................... 2,785,459 ----------- 2,934,151 ----------- Less: Accumulated depreciation............................ (2,128,820) 805,331 ----------- ----------- Total assets...................................... $ 1,287,483 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... $ 21,501 Property taxes payable...................................... 16,749 Tenant security deposits.................................... 9,200 Notes payable............................................... 2,482,254 Partners' deficit................................. (1,242,221) ----------- Total liabilities and partners' deficit........... $ 1,287,483 ----------- -----------
See Accompanying Notes to Financial Statements F-2 2466 LANDMARK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $439,609 $469,637 Other income.............................................. 46,293 69,503 -------- -------- Total revenues.................................... 485,902 539,140 Expenses: Operating expenses........................................ 210,360 225,795 General and administrative expenses....................... 19,878 16,520 Depreciation expense...................................... 41,401 41,401 Interest expense.......................................... 142,303 139,734 Property tax expense...................................... 16,749 16,722 -------- -------- Total expenses.................................... 430,691 440,172 -------- -------- Net income........................................ $ 55,211 $ 98,968 ======== ========
See Accompanying Notes to Financial Statements F-3 2467 LANDMARK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 --------- -------- Operating activities: Net income (loss)......................................... $ 55,211 $ 98,968 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 41,401 41,401 Changes in accounts: Receivables and deposits and other assets................. (22,503) (26,740) Accounts payable and accrued expenses..................... (9,079) (12,743) --------- -------- Net cash provided by (used in) operating activities...................................... 65,030 100,886 --------- -------- Investing activities: Property improvements and replacements.................... (70,044) (24,315) Net (increase)/decrease in restricted escrows............. (13,967) -- --------- -------- Net cash provided by (used in) investing activities....... (84,011) (24,315) --------- -------- Financing activities: Payments on mortgage...................................... (17,746) (26,255) --------- -------- Partners' Distributions................................... (300,000) -- --------- -------- Net cash provided by (used in) financing activities....... (317,746) (26,255) --------- -------- Net increase (decrease) in cash and cash equivalents...... (336,727) 50,316 Cash and cash equivalents at beginning of year............ 504,366 218,270 --------- -------- Cash and cash equivalents at end of period................ $ 167,639 $268,586 ========= ========
See Accompanying Notes to Financial Statements F-4 2468 LANDMARK ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Landmark Associates, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2469 LANDMARK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2470 INDEPENDENT AUDITORS' REPORT General Partners Landmark Associates, Limited: We have audited the accompanying balance sheets of Landmark Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landmark Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC March 5, 1998 F-7 2471 LANDMARK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 504,366 $ 200,292 Receivables and deposits.................................... 102,714 102,048 Restricted escrow (Note B).................................. 100,000 -- Other assets................................................ 75,329 19,964 Investment properties (Note C): Land...................................................... 145,000 145,000 Buildings and related personal property................... 2,719,107 2,690,697 ----------- ----------- 2,864,107 2,835,697 Less accumulated depreciation............................. (2,087,419) (2,032,218) ----------- ----------- 776,688 803,479 ----------- ----------- $ 1,559,097 $ 1,125,783 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 12,455 $ 8,690 Tenant security deposit liabilities....................... 15,475 18,366 Other liabilities......................................... 28,295 48,587 Mortgage note payable (Note C)............................ 2,500,000 2,124,870 Partners' deficit........................................... (997,128) (1,074,730) ----------- ----------- $ 1,559,097 $ 1,125,783 =========== ===========
See Accompanying Notes to Financial Statements F-8 2472 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 611,308 $ 623,834 Other income.............................................. 92,870 111,097 ----------- ----------- Total revenues......................................... 704,178 734,931 ----------- ----------- Expenses: Operating (Note D)........................................ 324,653 347,015 General and administrative (Note D)....................... 28,080 27,925 Depreciation.............................................. 55,201 55,018 Interest.................................................. 188,029 192,115 Property taxes............................................ 21,659 21,492 ----------- ----------- Total expenses......................................... 617,622 643,565 ----------- ----------- Net income before extraordinary loss........................ 86,556 91,366 Extraordinary loss on early extinguishment of debt.......... (8,954) -- ----------- ----------- Net income............................................. 77,602 91,366 Distributions to partners................................... -- (99,993) Partners' deficit at beginning of year...................... (1,074,730) (1,066,103) ----------- ----------- Partners' deficit at end of year............................ $ (997,128) $(1,074,730) =========== ===========
See Accompanying Notes to Financial Statements F-9 2473 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ----------- --------- Cash flows from operating activities: Net income................................................ $ 77,602 $ 91,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 55,201 55,018 Amortization of loan costs and deferred charges........ 9,900 10,807 Extraordinary loss on early extinguishment of debt..... 8,954 -- Change in accounts: Receivables and deposits............................. (666) (46,173) Other assets......................................... (2,830) (1,020) Accounts payable..................................... 3,765 (10,052) Tenant security deposit liabilities.................. (2,891) 3,800 Other liabilities.................................... (20,292) 11,612 ----------- --------- Net cash provided by operating activities......... 128,743 115,358 ----------- --------- Cash flows from investing activities: Property improvements and replacements.................... (28,410) (46,343) Deposits to restricted escrow............................. (100,000) -- ----------- --------- Net cash used in investing activities............. (128,410) (46,343) ----------- --------- Cash flows from financing activities: Proceeds from mortgage note payable....................... 2,500,000 -- Payment of loan costs..................................... (71,389) -- Payment on mortgage note payable.......................... (32,421) (32,906) Payoff of debt............................................ (2,092,449) -- Distributions to partners................................. -- (99,993) ----------- --------- Net cash provided by (used in) financing activities...................................... 303,741 (132,899) ----------- --------- Net increase (decrease) in cash............................. 304,074 (63,884) Cash and cash equivalents at beginning of year.............. 200,292 264,176 ----------- --------- Cash and cash equivalents at end of year.................... $ 504,366 $ 200,292 =========== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 178,116 $ 179,166 =========== =========
See Accompanying Notes to Financial Statements F-10 2474 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Landmark Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated July 30, 1982. The Partnership owns and operates a 104 unit apartment complex, Landmark Woods Apartments, in Florence, South Carolina. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $71,389 and $18,855, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 2475 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are to be used for certain repair work...................................................... $100,000 $ -- ======== ========
NOTE C -- MORTGAGE NOTE PAYABLE In November 1997, the Partnership refinanced its first mortgage note with an outstanding balance of $2,104,201. The new mortgage note in the amount of $2,500,000 is payable in monthly installments of $17,122, at 7.29% with the remaining balance due December 2004; collateralized by land and buildings. A loss on refinancing of $8,954 was realized 1997, as a result of the write-off of unamortized loan costs associated with the original note. Loan costs of $71,389 related to the refinanced note were capitalized. Between the date of November 1, 2000 and June 1, 2004, upon giving 30 days prior written notice, the principal balance may be prepaid in whole but not in part by paying a prepayment premium in an amount equal to the greater of (1) 1% of the principal amount being prepaid or (2) the present value of a series of payments each equal to the payment differential (the interest rate (7.29%) less the reinvestment yield (the lesser of the yield on the U.S. Treasury issue with a maturity date closest to the maturity date or the yield on the U.S. Treasury issue with a term equal to the remaining average life of the debt with each yield being based on the bid price for such issue as published in the Wall Street Journal on the date that is 14 days prior to the prepayment date divided by 12 and multiplied by the principal sum outstanding on the prepayment date)) and payable on each monthly payment date over the remaining original term of this note and the maturity date discounted at the reinvestment yield for the number of months remaining from the prepayment date to each such monthly payment date and the maturity date. Scheduled principal payments of the mortgage note during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 24,009 1999..................................................... 25,819 2000..................................................... 27,765 2001..................................................... 29,859 2002..................................................... 32,109 Thereafter............................................... 2,360,439 ---------- $2,500,000 ==========
F-12 2476 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $35,112 $35,967 Partnership administration fee........................... $ 6,884 $ 7,193 Reimbursement for services of affiliates................. $14,006 $13,833 Construction oversight costs............................. $ 675 $ --
F-13 2477 LANDMARK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2478 INDEPENDENT AUDITORS' REPORT General Partners Landmark Associates, Limited: We have audited the accompanying balance sheets of Landmark Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landmark Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC March 5, 1997 F-15 2479 LANDMARK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 200,292 $ 264,176 Restricted -- tenant security deposits.................... 17,978 13,978 Accounts receivable......................................... 2,270 1,793 Escrow for taxes and insurance.............................. 81,800 40,104 Other assets................................................ 19,964 29,751 Investment properties (Note B): Land...................................................... 145,000 145,000 Buildings and related personal property................... 2,690,697 2,644,354 ----------- ----------- 2,835,697 2,789,354 Less accumulated depreciation............................. (2,032,218) (1,977,200) ----------- ----------- 803,479 812,154 ----------- ----------- $ 1,125,783 $ 1,161,956 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 8,690 $ 18,742 Tenant security deposits.................................. 18,366 14,566 Other liabilities......................................... 48,587 36,975 Mortgage note payable (Note B)............................ 2,124,870 2,157,776 Partners' deficit........................................... (1,074,730) (1,066,103) ----------- ----------- $ 1,125,783 $ 1,161,956 =========== ===========
See Accompanying Notes to Financial Statements F-16 2480 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 623,834 $ 633,965 Other income.............................................. 111,097 74,884 ----------- ----------- Total revenues......................................... 734,931 708,849 ----------- ----------- Expenses: Operating (Note C)........................................ 276,556 272,174 General and administrative (Note C)....................... 27,925 40,473 Maintenance............................................... 70,459 66,800 Depreciation.............................................. 55,018 50,386 Interest.................................................. 192,115 184,269 Property taxes............................................ 21,492 24,723 ----------- ----------- Total expenses......................................... 643,565 638,825 ----------- ----------- Net income.................................................. 91,366 70,024 Distributions to partners................................... (99,993) -- Partners' deficit at beginning of year...................... (1,066,103) (1,136,127) ----------- ----------- Partners' deficit at end of year............................ $(1,074,730) $(1,066,103) =========== ===========
See Accompanying Notes to Financial Statements F-17 2481 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 ---------- --------- Cash flows from operating activities Net income................................................ $ 91,366 $ 70,024 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 55,018 50,386 Amortization of loan costs and deferred charges........ 10,807 10,808 Change in accounts: Restricted cash...................................... (4,000) 507 Accounts receivable.................................. (477) (1,566) Escrow for taxes and insurance....................... (41,696) (40,004) Other assets......................................... (1,020) -- Accounts payable..................................... (10,052) 11,162 Tenant security deposit liabilities.................. 3,800 (97) Other liabilities.................................... 11,612 8,498 --------- -------- Net cash provided by operating activities......... 115,358 109,718 --------- -------- Cash flows from investing activities: Property improvements and replacements.................... (46,343) (28,330) --------- -------- Net cash used in investing activities............. (46,343) (28,330) --------- -------- Cash flows from financing activities: Payments on mortgage note payable......................... (32,906) (32,066) Distributions to partners................................. (99,993) -- --------- -------- Net cash used in financing activities............. (132,899) (32,066) --------- -------- Net increase (decrease) in cash............................. (63,884) 49,322 Cash and cash equivalents at beginning of year.............. 264,176 214,854 --------- -------- Cash and cash equivalents, at end of year................... $ 200,292 $264,176 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 179,166 $171,192 ========= ========
See Accompanying Notes to Financial Statements F-18 2482 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Landmark Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated July 30, 1982. The Partnership owns and operates a 104 unit apartment complex, Landmark Woods Apartments, in Florence, South Carolina. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-19 2483 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note payable consists of a first mortgage note, due in October 1998, payable in varying monthly installments based on the interest rate; the current monthly payment is $17,958. The interest rate is adjusted every six months based on the average six month Treasury bill rate for the six months preceding the adjustment date plus three percent; the rate was 8.57% at December 31, 1996. The rate cannot change more than 1% from the prior period and has a lifetime floor and ceiling of 3.125% and 13.125%, respectively. The note is collateralized by the land and buildings and may be prepaid at any time without a prepayment penalty. Scheduled principal payments of the mortgage note during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 35,918 1998..................................................... 2,088,952 ---------- $2,124,870 ==========
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $35,967 $34,897 Partnership administration fee........................... $ 7,193 $ 6,979 Reimbursement for services of affiliates................. $13,833 $19,358
F-20 2484 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 2485 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for P-2 2486 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months P-3 2487 ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 2488 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 2489 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 2490 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 2491 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 2492 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 2493 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 2494 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 2495 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 2496 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 2497 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 2498 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 2499 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 2500 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 2501 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 2502 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 2503 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 2504 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 2505 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 2506 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 2507 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 2508 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 2509 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 2510 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 2511
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 2512 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 2513
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 2514 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 2515 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 2516 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 2517
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 2518 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 2519 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 2520 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 2521
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 2522 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 2523 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 2524 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2525 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2526 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2527 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2528 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2529 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2530 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2531 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2532 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2533 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2534 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: LANDMARK ASSOCIATES LTD. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of LANDMARK ASSOCIATES LTD. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $168 in cash, or 4.50 Common OP Units of the Purchaser, or 6.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996, 1996 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 2535 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2536 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2537 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2538
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2539
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2540
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2541
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2542 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2543 SUBJECT TO COMPLETION, DATED MARCH , 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Northbrook Apartments, Ltd. in exchange for your choice of: 1,078.25 of our 8.0% Class Two Partnership Preferred Units; 696.75 of our Partnership Common Units; or $26,952 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $26,952 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2544 TABLE OF CONTENTS
PAGE ---- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Northbrook Apartments, Ltd............................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-23 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ---- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF NORTHBROOK APARTMENTS, LTD.............................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58
i 2545
PAGE ---- Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ---- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2546 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Angeles Properties, Inc. and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,550,000, less approximately $183,993 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 2547 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 2548 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $2,156.50 per year on the number of Preferred OP Units, or distributions of $1,741.88 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 2549 partnership's units. During 1998, your partnership paid cash distributions of $3,992 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 2550 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,300,000 of balloon payments due on its mortgage debt in October, 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 2551 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2003 and require balloon payments of approximately $2,300,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 2552 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,992 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,156.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,992 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,741.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 2553 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the [property] at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2554 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.83% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 373,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership property..................... $ 3,550,000 Plus: Cash and cash equivalents............................. 479,584 Plus: Other partnership assets, net of security deposits.... 318,818 Less: Mortgage debt, including accrued interest............. (2,566,025) Less: Accounts payable and accrued expenses................. (13,022) Less: Other liabilities..................................... (264,525) ----------- Partnership valuation before taxes and certain costs........ 1,504,830 Less: Disposition fees...................................... (106,500) Less: Extraordinary capital expenditures and deferred maintenance............................................... (183,993) Less: Closing costs......................................... (88,750) ----------- Estimated net valuation of your partnership................. 1,125,587 Percentage of estimated net valuation allocated to holders of units.................................................. 74.23% ----------- Estimated net valuation of units............................ 835,516 Total number of units............................. 31.0 ----------- Estimated valuation per unit................................ $ 26,952 =========== Cash consideration per unit................................. $ 26,952 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $26,952 by the $25 liquidation preference of each Preferred OP Unit to get 1,078.25 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $26,952 by a price of $38.69 to get 696.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 2555 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT ---------- Cash offer consideration.................................... $ 26,952 Partnership Preferred Units................................. $ 26,952 Partnership Common Units.................................... $ 26,952 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 26,952 Estimated going concern value............................. $ 24,959 Alternative going concern value(1)........................ $ 25,791 Net book value (deficit).................................. $ (29,172)
- --------------- (1) Assumes sale of the property when balloon payments are due instead of refinancing the mortgages. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A S-10 2556 and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Northbrook Apartments, Ltd. is a Mississippi limited partnership which was formed on September 28, 1979 for the purpose of owning and operating a single apartment property located in Ridgeland, Mississippi, known as "Pinebrook Apartments." Pinebrook Apartments consists of 160 apartment units and was built in 1979. Your partnership has no employees. As of September 30, 1998, there were 31 units of limited partnership interest issued and outstanding, which were held of record by 31 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $4,900,000 of limited partnership units in 1979. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $13,688 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,442,321, payable to FNMA/GMAC, which bears interest at the rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $80,325, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 2557 THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,078.25 of our Class Two Partnership Preferred Units; - 696.75 of our Partnership Common Units; or - $26,952 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 31 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,078.25 Preferred OP Units, 696.75 Common OP Units, or $26,952 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 2558 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 2559 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $26,952 in cash, 1,078.25 Preferred OP Units or 696.75 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 2560 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $26,952. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $20,606 for the fiscal year ended December 31, 1998. The property manager received management fees of $44,267 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $208,878 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 2561 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2562
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2563 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2564
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2565 SUMMARY FINANCIAL INFORMATION OF NORTHBROOK APARTMENTS, LTD. The summary financial information of Northbrook Apartments, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Northbrook Apartments, Ltd. for the years ended December 31, 1997 and 1996, 1995 and 1994 is based on historical information for which 1997 has been audited. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." NORTHBROOK APARTMENTS, LTD.
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ----------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- --------- OPERATING DATA: Total Revenues.......................... $666,358 $635,220 $874,168 $866,804 $960,339 $812,226 $ 749,964 Net Income/(Loss)....................... 40,910 56,896 27,267 33,483 121,256 (51,245) (148,247) Net Income/(Loss) per limited partnership unit...................... 1,306 1,817 871 1,069 3,872 (1,637) (4,734) Distributions per limited partnership unit.................................. 4,027 4,244 4,359 5,337 57 -- -- Distributions per limited partnership unit (which represent a return of capital)..............................
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 433,467 $ 462,499 $ 479,584 $ 520,094 $ 579,034 $ 429,206 $ 357,456 Real Estate, Net of Accumulated Depreciation...................... 1,283,478 1,387,739 1,367,570 1,453,018 1,524,143 1,562,628 1,583,748 Total Assets........................ 1,916,500 2,058,316 2,053,345 2,185,835 2,340,013 2,251,042 2,304,579 Notes Payable....................... 2,501,056 2,527,064 2,523,775 2,551,128 2,576,442 2,599,868 2,621,716 General Partners' Capital/ (Deficit)........................... (6,553) (5,266) (5,701) (4,609) (3,272) (4,467) (3,955) Limited Partners' Capital/ (Deficit)........................... (648,760) (521,376) (564,409) (456,278) (323,972) (442,238) (391,505) Partners' Deficit..................... (655,313) (526,642) (570,110) (460,887) (327,244) (446,705) (395,460) Total Distributions................... 126,113 132,902 136,490 167,126 1,795 -- -- Book value per limited partnership unit................................ (20,928) (16,819) (18,207) (14,719) (10,451) (14,266) (12,629) Net increase (decrease) in cash and cash equivalents.................... (46,117) (57,595) (40,510) (58,940) 149,828 71,750 357,456 Net cash provided by operating activities.......................... 124,048 134,831 174,200 190,018 252,782 183,042 (330,946) Ratio of earnings to fixed charges.... 1.16/1 1.44/1 1.12/1 1.15/1 1.54/1 0.78/1 0.24/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING NORTHBROOK PARTNERSHIP APARTMENTS, LTD. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,156.50 $3,992 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $1,741.88 $3,992
S-20 2566 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 2567 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,550,000 less approximately $183,993 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 2568 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 2569 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 2570 is equivalent to distributions of $2,156.50 per year on the number of Preferred OP Units, or distributions of $1,741.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $3,992 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 2571 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,300,000 of balloon payments due on its mortgage debt in October, 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 2572 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest, consisting of a 0% limited partnership interest and a 1% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 2573 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 2574 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on October 15, 2003 and require balloon payments totaling $2,232,904. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2003 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger S-29 2575 would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of all the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 2576 - Preferred Quarterly Distributions. Your partnership paid distributions of $3,992 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,156.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,992 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,741.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 2577 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.83% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 2578 divided the property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $372,764 10.5% $3,550,000
- --------------- (1) The total net operating income is equal to total revenues of $855,982, less total expenses of $435,218 and recurring replacement costs of $48,000. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,125,587. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 74.23% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 373,000 Capitalization Rate......................................... 10.50% ----------- Gross valuation of partnership property..................... 3,550,000 Plus: Cash and cash equivalents............................. 479,584 Plus: Other partnership assets, net of security deposits.... 318,818 Less: Mortgage debt, including accrued interest............. (2,566,025) Less: Accounts payable and accrued expenses................. (13,022) Less: Other liabilities..................................... (264,525) ----------- Partnership valuation before taxes and certain costs........ 1,504,830 Less: Deposition fees....................................... (106,500) Less: Extraordinary capital expenditures for deferred maintenance............................................... (183,993) Less: Closing costs......................................... (88,750) ----------- Estimates net valuation of your partnership................. 1,125,587 Percentage of estimated net valuation allocated to holders of units.................................................. 74.23% ----------- Estimated net valuation of units............................ 835,516 Total number of units............................. 31.0 ----------- Estimated valuation per unit................................ 26,952 =========== Cash consideration per unit................................. 26,952 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $26,952 by the $25 liquidation preference of each Preferred OP Unit to get 1,078.25 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $26,952 by a price of $38.69 to get 696.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-33 2579 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $1,125,587 or .20% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $67,147 for the nine months ended September 30, 1997 to $40,910 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-34 2580 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $26,952, based on a total estimated value of your partnership's property of $3,550,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $2,156.50 per year on the number of Preferred OP Units, or distributions of $1,741.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $3,992. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your S-35 2581 units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 2582 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 26,952 Partnership preferred units................................. 26,952(1) Partnership common units.................................... 26,952(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 26,952 Estimated going concern value............................. $ 24,959 Net book value (deficit).................................. $(29,172) Alternative going concern value........................... $ 25,791(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 2583 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the property and the actual amounts for which the partnership's property or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $24,959 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due on October 15, 2003. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $25,791 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $29,172 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $27,236 per unit, going concern value of $25,448 per unit and liquidation value of $25,107 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- S-38 2584 Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $284, $(1,504) and $(1,845). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 74.23% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 2585 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $ 897,837 Operating Expenses.......................................... (432,997) Replacement Reserves -- Net................................. (65,263) Debt Service................................................ (234,061) Capital Expenditures........................................ (19,000) --------- Net Cash Flow..................................... $ 146,516 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts S-40 2586 will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net S-41 2587 operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; (iii) extraordinary capital expenditure estimates in the amount of $183,993; and (iv) a 3% disposition fee to the general partner. Stanger observed that your partnership liquidation value of $1,125,587 was allocated 74.23% to the limited partner and divided by the total units outstanding of 31 to provide liquidation value per unit of $26,952. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $373,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $40,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.0%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 31 to achieve management's estimate of going concern value of $24,959 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no limited partnership units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $26,952 per unit is equal to management's estimate of liquidation value, and reflects an 8% premium to management's estimate of going concern value of $24,959. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of the transaction preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed S-42 2588 that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.75% transaction costs of 2.5% to 5.0%, growth rates of 3.0% and a terminal capitalization rate of 11.25%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return from the discounted cash flow analysis, (13.25% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $27,236, $25,448, and $25,107 representing premiums (discounts) to the offer price of 1.0%, (5.6)% and (6.8)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the S-43 2589 date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 2590 YOUR PARTNERSHIP GENERAL Northbrook Apartments, Ltd., is a Mississippi limited partnership which completed a private offering in 1979. Insignia acquired the general partner of your partnership in November, 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 31 limited partners of your partnership and a total of 31 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on September 28, 1979 for the purpose of owning an apartment property located in Ridgeland, Mississippi, known as "Pinebrook Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1979 and consists of 160 apartment units. Your partnership's property had an average occupancy rate of approximately 92% in 1998, 95% in 1997 and 95% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $183,993 and are intended to be paid for out of cash flow or borrowings. Renovation items include siding, trim, stairwells, drives, parking lot, landscape, and irrigation. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $430 $429 $402 $401 $376
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $43,517 of $433,910 of assessed valuation with a current yearly tax rate of 10.03%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 10.53% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-45 2591 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 92% and $426, respectively, at December 31, 1998, compared to 95% and $430, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future due to market conditions in the area. In addition, the general partner noted that it expects to spend approximately $183,993 for capital replacements and improvements at the property in 1999 to update and improve the property's stairwells, paving, landscaping, and appearance. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,442,321, payable to FNMA/GMAC, which bears interest at a rate of 7.83%. The mortgage debt is due on October 15, 2003. Your partnership also has a second mortgage note outstanding of $80,325, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your S-46 2592 partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $4,900,000 of limited partnership units in 1979 for $50,000 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable, responsible or accountable in damages or otherwise to your partnership or the limited partner for any acts performed by any of them within the scope of the authority conferred upon them by your partnership's agreement of limited partnership, provided that such course of conduct did not constitute gross negligence or willful misconduct. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners are entitled to indemnification by your partnership for any act performed by it within the scope of the authority conferred upon them by your partnership's agreement of limited partnership, which does not constitute gross negligence or willful misconduct. Such indemnity will be paid out of and to the extent of your partnership assets. Furthermore, the operating general partner will indemnify the project general partner against any and all liability arising out of its acting as general partner of your partnership regardless of any fault of the project general partner, except to the extent that such liabilities are the result of its own willful misconduct or gross negligence. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 2593 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $50,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 $ 0 $0 $ 0 1994.................................. 0 0 0 0 1995.................................. 0 0 0 0 1996.................................. 5,391 1,671 0 41,364 1997.................................. 4,403 1,365 0 33,781 1998.................................. 4,032 1,250 0 30,938 ------- ------ -- -------- Total....................... $13,826 $4,286 $0 $106,083
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 1 3.23% 1 1998......................... 0 0 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership, including the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 2594 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $23,357 1995........................................................ 25,318 1996........................................................ 25,074 1997........................................................ 22,096 1998........................................................ 20,606
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $41,036 1996........................................................ 42,282 1997........................................................ 42,038 1998........................................................ 44,267
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 2595 SELECTED FINANCIAL INFORMATION OF NORTHBROOK APARTMENTS, LTD.
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 433,467 $ 462,499 $ 479,584 $ 520,094 $ 579,034 $ 429,206 $ 357,456 Land & Building............... 3,059,584 3,022,844 3,037,843 2,986,976 2,930,458 2,852,725 2,763,689 Accumulated Depreciation...... (1,776,106) (1,635,105) (1,670,273) (1,533,958) (1,406,315) (1,290,097) (1,179,941) Other Assets.................. 199,555 208,078 206,191 212,723 236,836 259,208 363,375 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 1,916,500 $ 2,058,316 $ 2,053,345 $ 2,185,835 $ 2,340,013 $ 2,251,042 $ 2,304,579 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 2,301,056 $ 2,527,064 $ 2,523,775 $ 2,551,128 $ 2,576,442 $ 2,599,868 $ 2,621,716 Other Liabilities............. 70,757 57,894 99,680 95,594 90,815 97,879 78,323 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 2,571,813 $ 2,584,958 $ 2,623,455 $ 2,646,722 $ 2,667,257 $ 2,697,747 $ 2,700,039 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit...... $ (655,313) $ (526,642) $ (570,110) $ (460,087) $ (327,244) $ (446,705) $ (395,460) =========== =========== =========== =========== =========== =========== ===========
NORTHBROOK APARTMENTS, LTD. ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................ $ 621,964 $ 601,283 $ 826,494 $ 823,076 $ 771,487 $ 770,691 $ 722,535 Other Income.................. 64,394 33,937 47,674 43,728 188,852 41,535 27,429 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue......... $ 666,358 $ 635,220 $ 874,168 $ 866,804 $ 960,339 $ 812,226 $ 749,964 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............ $ 317,090 $ 254,826 $ 406,975 $ 401,047 $ 406,285 $ 391,476 $ 469,856 General & Administrative...... 34,725 27,906 40,169 43,006 44,493 78,235 87,205 Depreciation.................. 105,425 100,739 136,315 127,643 116,218 110,564 102,353 Interest Expense.............. 159,779 161,732 218,593 220,664 223,709 235,105 195,363 Property Taxes................ 28,429 33,121 44,849 40,961 48,378 48,091 43,434 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses........ $ 625,448 $ 578,324 $ 846,901 $ 833,321 $ 839,083 $ 863,471 $ 898,211 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) before extraordinary items......... $ 40,910 $ 56,896 $ 27,267 $ 33,483 $ 121,256 $ (51,245) $ (148,247) Extraordinary Items........... -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............. $ 40,910 $ 56,896 $ 27,267 $ 33,483 $ 121,256 $ (51,215) $ 148,247) =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit............ $ 1,306 $ 1,817 $ 871 $ 1,089 $ 3,872 $ (1,637) $ (4,734) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............ $ 4,027 $ 4,244 $ 4,359 $ 5,337 $ 57 $ -- $ -- =========== =========== =========== =========== =========== =========== ===========
S-50 2596 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $40,910 for the nine months ended September 30, 1998, compared to $56,896 for the nine months ended September 30, 1997, a decrease in net income of $15,986 or 28.10%. This decrease was primarily the result of a greater increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $666,358 for the nine months ended September 30, 1998, compared to $635,220 for the nine months ended September 30, 1997, an increase of $31,138 or 4.90%. The Partnership increased rental rates by an average of 3.47%. Other income increased by $10,457 due to increased income from laundry fees, lease cancellation fees, and pet fees. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $360,244 for the nine months ended September 30, 1998, compared to $315,853 for the nine months ended September 30, 1997, an increase of $44,391 or 14.05%. This increase was primarily the result of an increase in repairs and maintenance and marketing expenses. Management expenses totaled $33,227 for the nine months ended September 30, 1998, compared to $32,037 for the nine months ended September 30, 1997, an increase of $1,190 or 3.71%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $159,779 for the nine months ended September 30, 1998, compared to $161,732 for the none months ended September 30, 1997 a decrease of $1,953, or 1.20%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $27,267 for the year ended December 31, 1997, compared to $33,483 for the year ended December 31, 1996, a decrease in net income of $6,216, or 18.56%. The decrease was primarily the result of a greater increase in operating expenses. REVENUES Rental and other property revenues from the Partnership's property totaled $874,168 for the year ended December 31, 1997, compared to $866,804 for the year ended December 31, 1996, an increase of $7,364, or S-51 2597 .85%. The Partnership increased rental rates by an average of 3% while occupancy rates decreased 1% to 91%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $406,975 for the year ended December 31, 1997, compared to $401,047 for the year ended December 31, 1996, an increase of $5,928 or 1.48%. This increase relates to increased newspaper and other advertising expenses to help increase occupancy rates. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $40,169 for the year ended December 31, 1997 compared to $43,006 for the year ended December 31, 1996, a decrease of $2,837 or 6.60%. The decrease is primarily due to a reduction in office and computer supplies expense. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $218,593 for the year ended December 31, 1997, compared to $220,664 for the year ended December 31, 1996, a decrease of $2,071, or 0.94%. This decrease was due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized net income of $33,483 for the year ended December 31, 1996, compared to $121,256 for the year ended December 31, 1995. The decrease in net income of $87,773, or 72.39% was primarily the result of a decrease in other income. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership's property totaled $866,804 for the year ended December 31, 1996, compared to $960,339 for the year ended December 31, 1995, a decrease of $93,535, or 9.74%. This decrease was primarily the result of a settlement agreement payment received in 1995 with respect to an AMIT obligation. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $401,047 for the year ended December 31, 1996, compared to $406,285 for the year ended December 31, 1995, a decrease of $5,238 or 1.29%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $43,006 for the year ended December 31, 1996 compared to $44,493 for the year ended December 31, 1995, a decrease of $1,487 or 3.34%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $220,664 for the year ended December 31, 1996, compared to $223,709 for the year ended December 31, 1995, a decrease of S-52 2598 $3,045, or 1.36%. This decrease was due to a lower outstanding balance on mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $433,467 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $30,607, was $2,501,056. The mortgages require monthly payments of approximately $19,505 until October 2003, at which time a balloon payment of approximately $2,351,667 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.83%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 2599 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 31 units of your partnership (up to 7.75 units) for consideration per unit of (i) 1,078.25 Preferred OP Units, (ii) 696.75 Common OP Units, or (iii) $26,952 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 2600 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 2601 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 2602 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 2603 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 2604 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 2605 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell its property or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 2606 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 2607 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 2608 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 2609 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were heard on February 8, 1999, but no decision has been reached by the Court. S-64 2610 While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 2611 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 2612 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 2613 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 2614 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 2615 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 2616 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Mississippi law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating hold, lease, mortgage, refinance, maintain, Partnership is to conduct any business that manage, improve, develop or otherwise deal may be lawfully conducted by a limited with or in your partnership's property. partnership organized pursuant to the Subject to restrictions contained in your Delaware Revised Uniform Limited Part- partnership's agreement of limited nership Act (as amended from time to time, partnership, your partnership may perform or any successor to such statute) (the all acts necessary, advisable or convenient "Delaware Limited Partnership Act"), to the business of your partnership provided that such business is to be including borrowing money and creating conducted in a manner that permits AIMCO to liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 2617 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership may The general partner is authorized to issue not admit additional limited partners to additional partnership interests in the your partnership. AIMCO Operating Partnership for any partnership purpose from time to time to the limited partners and to other persons, and to admit such other persons as additional limited partners, on terms and conditions and for such capital contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, the general partner may contribute funds or other assets to its enter into contracts with its affiliates on subsidiaries or other persons in which it terms reasonably competitive has an equity investment,
S-72 2618 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP with those which would be obtained from and such persons may borrow funds from the independent third parties for property or AIMCO Operating Partnership, on terms and services required by your partnership. The conditions established in the sole and partnership may make loans to any of the absolute discretion of the general partner. partners for periods of no more than one To the extent consistent with the business year, with or without interest or security. purpose of the AIMCO Operating Partnership In addition, the partners may make loans to and the permitted activities of the general your partnership at any time when your partner, the AIMCO Operating Partnership may partnership is in need of additional funds. transfer assets to joint ventures, limited Such loans will be evidenced by promissory liability companies, partnerships, notes which bear interest at a rate the corporations, business trusts or other lesser of the maximum rate permitted under business entities in which it is or thereby Mississippi law or 10% per annum and which becomes a participant upon such terms and will be payable prior to distributions. subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations, recourse and the general partner has full power and nonrecourse, on behalf of your partnership authority to borrow money on behalf of the and to give as security therefor any of your AIMCO Operating Partnership. The AIMCO partnership's property. However, the general Operating Partnership has credit agreements partner may not modify or amend the Mortgage that restrict, among other things, its Loan (as defined in your partnership's ability to incur indebtedness. agreement of limited partnership) with the result that it will be other than a nonrecourse mortgage which provides in general that the mortgagee thereof may look only to the mortgaged property for collection of any sum due under or in connection with the Mortgage (as defined in your partnership's agreement of limited partnership) or the Mortgage Note (as defined in your partnership's agreement of limited partnership).
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a partner or its duly written demand with a statement of the authorized representative to audit, examine purpose of such demand and at such OP and make copies of the books, records and Unitholder's own expense, to obtain a accounts of your partnership during business current list of the name and last known hours upon reasonable notice at the princi- business, residence or mailing address of pal office of your partnership or of the the general partner and each other OP general partner. Unitholder.
S-73 2619 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership All management powers over the business and manages and conducts the business of your affairs of the AIMCO Operating Partnership partnership. It may take any and all actions are vested in AIMCO-GP, Inc., which is the with respect to your partnership's property general partner. No OP Unitholder has any and your partnership without limitation, right to participate in or exercise control except to the extent specifically limited by or management power over the business and your partnership's agreement of limited affairs of the AIMCO Operating Partner- partnership or by law. The limited partner ship. The OP Unitholders have the right to may not take part in the management of the vote on certain matters described under business of your partnership, transact any "Comparison of Your Units and AIMCO OP business for your partnership, nor have any Units -- Voting Rights" below. The general power to sign for, bind or subject your partner may not be removed by the OP partnership to any liability or obligation. Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable, responsible Agreement, the general partner is not liable or accountable in damages or otherwise to to the AIMCO Operating Partnership for your partnership or the limited partner for losses sustained, liabilities incurred or any acts performed by any of them within the benefits not derived as a result of errors scope of the authority conferred upon it by in judgment or mistakes of fact or law of your partnership's agreement of limited any act or omission if the general partner partnership, provided that such course of acted in good faith. The AIMCO Operating conduct does not constitute gross negligence Partnership Agreement provides for or willful misconduct. In addition, the indemnification of AIMCO, or any director or general partner is entitled to officer of AIMCO (in its capacity as the indemnification by previous
S-74 2620 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP your partnership for any act performed by it general partner of the AIMCO Operating within the scope of the authority conferred Partnership), the general partner, any upon it by your partnership's agreement of officer or director of general partner or limited partnership, which does not the AIMCO Operating Partnership and such constitute gross negligence or willful other persons as the general partner may misconduct. Such indemnity will be paid out designate from and against all losses, of and to the extent of your partnership claims, damages, liabilities, joint or assets. several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Your partnership's agreement of limited Except in limited circumstances, the general partnership does not provide for the removal partner has exclusive management power over of a general partner by the limited partner. the business and affairs of the AIMCO The project general partner may resign at Operating Partnership. The general partner any time. The operating general partner may may not be removed as general partner of the retire after giving notice to your AIMCO Operating Partnership by the OP partnership. Upon such an event, the limited Unitholders with or without cause. Under the partner may elect a successor operating AIMCO Operating Partnership Agreement, the general partner with the consent of the general partner may, in its sole discretion, project general partner. The limited partner prevent a transferee of an OP Unit from may not transfer its interests without the becoming a substituted limited partner consent of the general partner which may be pursuant to the AIMCO Operating Partnership withheld at the sole discretion of the Agreement. The general partner may exercise general partner. this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the set forth in the AIMCO Operating Partnership written consent of all partners. Agreement,
S-75 2621 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP whereby the general partner may, without the consent of the OP Unitholders, amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the limited partner is gross negligence, no OP Unitholder has not personally liable for the debts or personal liability for the AIMCO Operating liabilities of your partnership in excess of Partnership's debts and obligations, and its capital contribution which become pay- liability of the OP Unitholders for the able pursuant to the terms of your AIMCO Operating Partnership's debts and partnership's agreement of limited obligations is generally limited to the partnership. amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to
S-76 2622 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner at relevant partnership agreement, Delaware law all times must exercise its responsibilities generally requires a general partner of a as fiduciaries of your partnership and the Delaware limited partnership to adhere to limited partner and in a manner consistent fiduciary duty standards under which it owes with the objectives of your partnership. The its limited partners the highest duties of general partner must devote such time and good faith, fairness and loyalty and which attention to your partnership business as generally prohibit such general partner from may be necessary for the proper performance taking any action or engaging in any of its duties. However, the general partner transaction as to which it has a conflict of or its affiliates may engage or hold interest. The AIMCO Operating Partnership interests in business ventures of every kind Agreement expressly authorizes the general and description, and neither your partner to enter into, on behalf of the partnership's property nor the partners will AIMCO Operating Partnership, a right of have any right in or to such independent first opportunity arrangement and other ventures or to the income or profits derived conflict avoidance agreements with various therefrom. affiliates of the AIMCO Operating Partnership and the general partner, on such In general, your partnership's agreement of terms as the general partner, in its sole limited partnership and the AIMCO Operating and absolute discretion, believes are Partnership Agreement have limitations on advisable. The AIMCO Operating Partnership the liability of the general partner but Agreement expressly limits the liability of such limitations differ and provide more the general partner by providing that the protection for the general partner of the general partner, and its officers and AIMCO Operating Partnership. directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a
S-77 2623 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership.
S-78 2624 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS justments from time to time on or To the extent the AIMCO Oper- after the fifth anniversary of the ating Partnership sells or refi- issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting Northbrook Partners, Ltd., Agreement, the holders of rights only with respect to the original limited the Preferred OP Units will certain limited matters such partner, is necessary for have the same voting rights as certain amendments and the general partners to as holders of the Common OP termination of the AIMCO amend your partnership's Units. See "Description of Operating Partnership agreement of limited OP Units" in the accompany- Agreement and certain partnership, terminate your ing Prospectus. So long as transactions such as the partnership or sell of all any Preferred OP Units are institution of bankruptcy or substantially all of the outstanding, in addition to proceedings, an assignment assets of your partnership. any other vote or consent of for the benefit of creditors partners required by law or and certain transfers by the In general, you have greater by the AIMCO Operating general partner of its voting rights in your Partnership Agreement, the interest in the AIMCO partnership than you will affirmative vote or consent Operating Partnership or the have as an OP Unitholder. OP of holders of at least 50% admission of a successor Unitholders can not remove of the outstanding Preferred general partner. the general partner of the OP Units will be necessary AIMCO Operating Partnership. for effecting any amendment Under the AIMCO Operating of any of the provisions of Partnership Agreement, the the Partnership Unit general partner has the Designation of the Preferred power to effect the OP Units that materially and acquisition, sale, transfer, adversely affects the rights exchange or other or preferences of the disposition of any assets of holders of the Preferred OP the AIMCO Operating Units. The creation or Partnership (including, but issuance of any class or not limited to, the exercise series of partnership units, or grant of any conversion, including, without option, privilege or limitation, any partner- subscription right or any ship units that may have other right available in rights senior or superior to connection with any assets the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) materially adversely affect or the merger, the rights or preferences of consolidation, the holders of Preferred OP reorganization or other Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause
S-79 2625 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Cash from at the rate of $0.50 per or such portion as the Operation are made from time Preferred OP Unit; provided, general partner may in its to time, but not less often however, that at any time sole and absolute discretion than annually and all and from time to time on or determine, of Available Cash distributions in respect of after the fifth anniversary (as defined in the AIMCO any calendar year will be of the issue date of the Operating Partnership distributed not later than Preferred OP Units, the Agreement) generated by the ninety days after the end of AIMCO Operating Partnership AIMCO Operating Partnership such year. The distributions may adjust the annual during such quarter to the payable to the partners are distribution rate on the general partner, the special not fixed in amount and Preferred OP Units to the limited partner and the depend upon the operating lower of (i) 2.00% plus the holders of Common OP Units results and net sales or annual interest rate then on the record date es- refinancing proceeds applicable to U.S. Treasury tablished by the general available from the disposi- notes with a maturity of partner tion of your partnership's five years, and assets.
S-80 2626 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS (ii) the annual dividend with respect to such rate on the most recently quarter, in accordance with issued AIMCO non-convertible their respective interests preferred stock which ranks in the AIMCO Operating on a parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-81 2627 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
The limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) a written securities exchange. The transferability of the OP assignment has been duly Preferred OP Units are Units. Until the expiration executed and acknowledged by subject to restrictions on of one year from the date on the assignor and assignee, transfer as set forth in the which an OP Unitholder (2) the approval of the AIMCO Operating Partnership acquired OP Units, subject general partner which may be Agreement. to certain exceptions, such withheld in the sole and OP Unitholder may not absolute discretion of the Pursuant to the AIMCO transfer all or any por- general partner has been Operating Partnership tion of its OP Units to any granted, (3) the transferee Agreement, until the transferee without the obligates itself to be bound expiration of one year from consent of the general by your partnership's the date on which a holder partner, which consent may agreement of limited of Preferred OP Units be withheld in its sole and partnership, (4) all other acquired Preferred OP Units, absolute discretion. After partners consent and (5) the subject to certain the expiration of one year, assignor and assignee have exceptions, such holder of such OP Unitholder has the complied with such other Preferred OP Units may not right to transfer all or any conditions as set forth in transfer all or any portion portion of its OP Units to your partnership's agreement of its Preferred OP Units to any person, subject to the of limited partnership. any transferee without the satisfaction of certain con- There are no redemption consent of the general ditions specified in the rights associated with your partner, which consent may AIMCO Operating Partnership units. be withheld in its sole and Agreement, including the absolute discretion. After general partner's right of the expiration of one year, first refusal. See such holders of Preferred OP "Description of OP Units -- Units has the right to Transfers and Withdrawals" transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-82 2628 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 2629 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 2630 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 2631 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 2632 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 2633 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 2634 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 2635 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 2636 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 2637 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 2638 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $25,074 in 1996, $22,906 in 1997 and $20,606 in 1998. The property manager received management fees of $42,282 in 1996, $42,038 in 1997 and $44,267 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 2639 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $208,878 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 2640 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The consolidated financial statements of Northbrook Partners, Limited as of December 31, 1997 and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 2641 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations -- for the nine months ended September 30, 1998 and 1997 (unaudited)............. F-3 Condensed Statements of Cash Flows -- the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheet as of December 31, 1997 and 1996 (unaudited)............................................... F-8 Consolidated Statements of Operations and Changes in Partners' Deficit -- for the year ended December 31, 1997 and 1996 (unaudited)...................................... F-9 Consolidated Statement of Cash Flows -- for the year ended December 31, 1997 and 1996 (unaudited).................... F-10 Notes to Consolidated Financial Statements.................. F-11 Independent Auditors' Report................................ F-14
F-1 2642 NORTHBROOK PARTNERS, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 433,467 Other assets................................................ 199,555 Investment property: Land...................................................... $ 185,500 Building and related personal property.................... 2,874,084 ---------- 3,059,584 Less: Accumulated depreciation............................ (1,776,106) 1,283,478 ---------- ---------- Total assets...................................... $1,916,500 ========== LIABILITIES AND PARTNERS' CAPITAL Other accrued liabilities................................... $ 70,757 Notes payable............................................... 2,501,056 Partners' deficit................................. (655,313) ---------- Total liabilities and partners' deficit........... $1,916,500 ==========
See accompanying notes to financial statements. F-2 2643 NORTHBROOK PARTNERS, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $621,964 $601,283 Other income.............................................. 44,394 33,937 -------- -------- Total revenues.................................... 666,358 635,220 -------- -------- Expenses: Operating expenses........................................ 331,815 282,732 Depreciation expense...................................... 105,425 100,739 Interest expense.......................................... 159,779 151,481 Property tax expense...................................... 28,429 33,121 -------- -------- Total expenses.................................... 625,448 568,073 -------- -------- Net income........................................ $ 40,910 $ 67,147 ======== ========
See accompanying notes to financial statements. F-3 2644 NORTHBROOK PARTNERS, LIMITED CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- Operating activities: Net Income................................................ $ 40,910 $ 67,147 Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 105,425 100,739 Changes in accounts: Receivables and deposits and other assets.............. 6,636 4,645 Accounts payable and accrued expenses.................. (28,923) (37,700) --------- --------- Net cash provided by (used in) operating activities...................................... 124,048 134,831 --------- --------- Investing activities: Property improvements and replacements.................... (21,333) (35,460) --------- --------- Net cash provided by (used in) investing activities....... (21,333) (35,460) --------- --------- Financing activities: Payments on mortgage...................................... (22,719) (24,064) Partners' distributions................................... (126,113) (132,902) --------- --------- Net cash provided by (used in) financing activities....... (148,832) (156,966) --------- --------- Net increase (decrease) in cash and cash equivalents...... (46,117) (57,595) Cash and cash equivalents at beginning of period.......... 479,584 520,094 --------- --------- Cash and cash equivalents at end of period................ $ 433,467 $ 462,499 ========= =========
See accompanying notes to financial statements. F-4 2645 NORTHBROOK PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Northbrook Partners, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 2646 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2647 INDEPENDENT AUDITORS' REPORT General Partners Northbrook Partners, Limited: We have audited the consolidated balance sheet of Northbrook Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of operations and changes in partners' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northbrook Partners, Limited and its limited partnership interest as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina December 9, 1998 F-7 2648 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 ----------- ----------- UNAUDITED Cash and cash equivalents................................... $ 479,584 $ 520,094 Receivables and deposits.................................... 56,664 56,489 Restricted escrows (Note B)................................. 69,813 66,943 Other assets................................................ 79,714 89,291 Investment properties (Note C): Land...................................................... 185,500 185,500 Buildings and related personal property................... 2,852,343 2,801,476 ----------- ----------- 3,037,843 2,986,976 Less accumulated depreciation............................. (1,670,273) (1,533,958) ----------- ----------- 1,367,570 1,453,018 ----------- ----------- $ 2,053,345 $ 2,185,835 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 12,654 $ 13,114 Tenant security deposits.................................. 13,710 11,918 Accrued taxes............................................. 43,009 40,961 Other liabilities......................................... 30,307 29,601 Mortgage notes payable (Note C)........................... 2,523,775 2,551,128 Partners' deficit................................. (570,110) (460,887) ----------- ----------- $ 2,053,345 $ 2,185,835 =========== ===========
See accompanying notes to consolidated financial statements. F-8 2649 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- UNAUDITED Revenues: Rental income............................................. $ 826,494 $ 823,076 Other income.............................................. 47,674 43,728 --------- --------- Total revenues.................................... 874,168 866,804 --------- --------- Expenses: Operating (Note D)........................................ 405,818 399,891 General and administrative (Note D)....................... 40,169 43,006 Depreciation.............................................. 136,315 127,643 Amortization.............................................. 1,157 1,156 Interest.................................................. 218,593 220,664 Property taxes............................................ 44,849 40,961 --------- --------- Total expenses.................................... 846,901 833,321 --------- --------- Net income.................................................. 27,267 33,483 Distributions to partners................................... (136,490) (167,126) Partners' deficit at beginning of year...................... (460,887) (327,244) --------- --------- Partners' deficit at end of year............................ $(570,110) $(460,887) ========= =========
See accompanying notes to consolidated financial statements. F-9 2650 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- UNAUDITED Cash flows from operating activities: Net income................................................ $ 27,267 $ 33,483 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 136,315 127,643 Amortization of discounts and loan costs, and acquisition costs..................................... 18,125 17,730 Change in accounts: Receivables and deposits............................. (175) (1,205) Other assets......................................... (3,497) (696) Accounts payable..................................... (460) 6,533 Tenant security deposit liabilities.................. 1,792 238 Accrued taxes........................................ 2,048 (7,417) Other liabilities.................................... 706 5,425 --------- --------- Net cash provided by operating activities......... 182,121 181,734 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (50,867) (56,518) Net (deposits) receipts to restricted escrows............. (2,870) 12,942 --------- --------- Net cash used in investing activities............. (53,737) (43,576) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (32,404) (29,972) Distributions to partners................................. (136,490) (167,126) --------- --------- Net cash used in financing activities............. (168,894) (197,098) --------- --------- Net decrease in cash and cash equivalents................... (40,510) (58,940) Cash and cash equivalents at beginning of year.............. 520,094 579,034 --------- --------- Cash and cash equivalents at end of year.................... $ 479,584 $ 520,094 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 201,657 $ 204,090 ========= =========
See accompanying notes to consolidated financial statements. F-10 2651 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Northbrook Partners, Limited (the "Partnership"), and its limited partnership interest in Northbrook Apartments, Limited (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 160 unit garden apartment complex located in Madison County, Mississippi. The Partnership was organized as a Mississippi limited partnership on September 21, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles MAE Ventures, Inc., the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the General Partner has contributed $100,000 to the Partnership for which it is entitled to a 1% interest in the operating profits, losses, credits and cash distributions of the Partnership. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Capital contributions of the limited partners aggregated $1,600,000. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions of $1,161,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. MAE Ventures, Inc. is entitled to the remaining 1% of the same. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. F-11 2652 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other Assets Other assets at December 31, 1997 and 1996, include unamortized deferred loan costs of $69,015 and $80,932, respectively, which are amortized over the term of the related borrowing. The amortization expense is included in interest on the statement of operations and changes in partners' deficit. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $69,813 and $66,943, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996, consist of the following:
1997 1996 ---------- ----------- (UNAUDITED) First mortgage note payable in monthly installments of $18,981, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $2,477,356 $2,509,760 Second mortgage note payable in interest only monthly installments of $524, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 80,325 80,325 ---------- ---------- Principal balance at year end............................... 2,557,681 2,590,085 Less unamortized discount................................... (33,906) (38,957) ---------- ---------- $2,523,775 2,551,128 ========== ==========
Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998........................................................ $ 35,035 1999........................................................ 37,878 2000........................................................ 40,953 2001........................................................ 44,277 2002........................................................ 47,871 Thereafter.................................................. 2,351,667 ---------- $2,557,681 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 2653 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by the General Partner and its affiliates on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ----------- (UNAUDITED) Property management fee..................................... $42,038 $42,282 Reimbursement for services of affiliates.................... $22,906 $25,074
In addition, the General Partner is entitled to a partnership management fee equal to 5% of the Partnership's adjusted cash from operations as distributed, pursuant to the partnership agreement. The General Partner was entitled to a $6,805 partnership management fee during 1997. For the period from January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. F-13 2654 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 2655 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 2656 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 2657 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 2658 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 2659 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 2660 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 2661 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 2662 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 2663 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 2664 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 2665 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii)Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii)Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii)Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 2666 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii)Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv)Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi)Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii)Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii)Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix)Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi)Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii)Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 2667 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii)Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 2668 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 2669 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 2670 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 2671 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 2672 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 2673 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 2674 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 2675 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 2676 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 2677 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 2678 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 2679 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 2680 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 2681
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 2682 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 2683
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 2684 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 2685 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 2686 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 2687
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 2688 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 2689 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 2690 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 2691
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 2692 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 2693 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 2694 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2695 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2696 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2697 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2698 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2699 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2700 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2701 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2702 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2703 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2704 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Northbrook Apartments, Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Northbrook Apartments, Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $26,952 in cash, or 696.75 Common OP Units of the Purchaser, or 1,078.25 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 2705 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; and 10. Reviewed information provided by the Company relating to debt encumbering the Property; 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2706 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2707 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2708
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2709
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2710
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2711
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2712 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2713 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Orchard Park Apartments Limited Partnership in exchange for your choice of: 3.75 of our 8.0% Class Two Partnership Preferred Units; 2.50 of our Partnership Common Units; or $89 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $89 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2714 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Orchard Park Apartments Limited Partnership............. S-20 Comparative Per Unit Data.................... S-21 THE AIMCO OPERATING PARTNERSHIP................ S-22 RISK FACTORS................................... S-23 Risks to Unitholders Who Tender Their Units in the Offer............................... S-23 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-23 Offer Consideration May Not Equal the Value of Your Units............................ S-23 Conflicts of Interest with Respect to the Offer.................................... S-23 Possible Subsequent Offer at a Higher Price.................................... S-23 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-23 Holding Units May Result in Greater Future Value.................................... S-24 Offer Consideration May Not Represent Fair Market Value............................. S-24 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-24 Offer Consideration May Be Less Than Liquidation Value........................ S-24 Fairness Opinion of Third Party Relied on Information We Provided.................. S-25 Loss of Future Distributions from Your Partnership.............................. S-25 Possible Effect of the Other Exchange Offers on Us............................. S-25 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-25 Fundamental Change in Nature of Investment............................... S-25 Fundamental Change in Number of Properties Owned.................................... S-25 Lack of Trading Market for OP Units........ S-25 Uncertain Future Distributions............. S-26 Possible Reduction in Required Distributions on Preferred OP Units...... S-26 Possible Lower Distributions............... S-26 Uncertain Terms of Preferred Stock......... S-26 Redemption Price of Preferred OP Units..... S-26 Possible Recognition of Taxable Gains on OP Units.................................... S-26 Limitations on Effecting a Change of Control.................................. S-26 Limitation on Transfer of OP Units......... S-26 Limited Voting Rights of Holders of OP Units.................................... S-26 Market Prices for AIMCO's Securities May Fluctuate................................ S-26
PAGE ----- Litigation Associated with Partnership Acquisitions............................. S-26 Dilution of Interests of Holders of OP Units.................................... S-27 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-27 Possible Increase in Control of Your Partnership by Us........................ S-27 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-27 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-27 Risk of Inability to Transfer Units for 12-Month Period.......................... S-27 Possible Change in Time Frame Regarding Sale of Property......................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-28 Background of the Offer...................... S-28 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59
i 2715
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-59 Prorations................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79
PAGE ----- DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85 Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 Description of Class I Preferred Stock....... S-88 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2716 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Corporation & GP Real Estate Services, II, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-23 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $4,328,000, less approximately $873,070 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 2717 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 2718 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2013 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. S-3 2719 POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of S-4 2720 any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of S-5 2721 the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in August 2014. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 2722 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $7.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 2723 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2724 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.80% per annum, which resulted in an increase from the initial capitalization rate of 1.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 498,000 Capitalization rate......................................... 11.50% ----------- Gross valuation of partnership property..................... $ 4,328,000 Net Cash Shortfall.......................................... 313,366 Plus: Cash and cash equivalents............................. 184,675 Plus: Other partnership assets, net of security deposits.... 57,316 Less: Mortgage debt, including accrued interest............. (3,777,657) Less: Accounts payable and accrued expenses................. (34,046) Less: Other liabilities..................................... (85,865) ----------- Partnership valuation before taxes and certain costs........ 985,789 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (873,070) Less: Closing costs......................................... (108,200) ----------- Estimated net valuation of your partnership................. 4,519 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 4,474 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 89 =========== Cash consideration per unit................................. $ 89 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $89 by the $25 liquidation preference of each Preferred OP Unit to get 3.75 Preferred OP Units per unit. S-9 2725 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $89 by a price of $38.69 to get 2.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 89 Partnership Preferred Units................................. $ 89 Partnership Common Units.................................... $ 89 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 89 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(47,851)
- --------------- STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a S-10 2726 financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Orchard Park Apartments Limited Partnership is a South Carolina limited partnership which was formed in 1983 for the purpose of owning and operating a single apartment property located in Greenville, South Carolina, known as "Orchard Park Apartments." Orchard Park Apartments consists of 172 units and was built in 1983. Your partnership has no employees. As of September 30, 1998, there were 50 units of limited partnership interest issued and outstanding, which were held of record by 48 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,675,000 of limited partnership units in 1984. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $0 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,648,375, payable to Life Insurance Co., which bears interest at the rate of 9.75%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 2727 THE OFFER In exchange for each of your units, we are offering you a choice of: - 3.75 of our Class Two Partnership Preferred Units; - 2.50 of our Partnership Common Units; or - $89 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 50 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 3.75 Preferred OP Units, 2.50 Common OP Units, or $89 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 2728 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 2729 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $89 in cash, 3.75 Preferred OP Units or 2.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 2730 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $89. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $5,000 for the fiscal year ended December 31, 1998. The property manager received management fees of $61,059 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,113 will be required to purchase all of the units sought in our offer, if such units are tendered for cash. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. S-15 2731 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2732
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2733 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2734
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2735 SUMMARY FINANCIAL INFORMATION OF ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP The summary financial information of Orchard Park Apartments Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Orchard Park Apartments Limited Partnership for the years ended December 31, 1997 and 1996 is based on unaudited financial statements. The December 31, 1995, 1994, and 1993 information is based on unaudited financial information, which is not included in this Prospectus Supplement. This information should be read in conjunction with such unaudited financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- -------- ---------- ---------- -------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues................... $ 885 $ 887 $ 1,215 $ 1,239 $ 1,227 $ 1,166 $ 1,023 Net Income/(Loss)................ (50) (35) (53) (97) (13) (62) (93) Net Income per limited partnership unit............... (1,000.00) (700.00) (1,040.00) (1,920.00) (260.00) (1,220.00) (1,840.00) Distributions per limited partnership unit............... -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)....................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, --------------------------- ------------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents......... $ 172 $ 155 $ 190 $ 174 $ 161 $ 81 $ 24 Real Estate, Net of Accumulated Depreciation........ 2,323 2,520 2,487 2,624 2,783 2,937 3,076 Total Assets.......... 2,757 2,932 2,869 3,093 3,161 3,240 3,374 Notes Payable......... 3,673 3,765 3,743 3,828 3,906 3,977 4,041 General Partners' Capital/ (Deficit).... (37) (35) (36) (35) (34) (34) (33) Limited Partners' Capital/ (Deficit).... (1,041) (975) (992) (940) (844) (831) (770) ------------ ------------ ------------ ------------ ------------ ------------ ------------ Partners' Capital (Deficit)............. (1,078) (1,010) (1,028) (975) (878) (865) (803) Total Distributions..... -- -- -- -- -- -- -- Book value per limited partnership unit...... (20,820.00) (19,500.00) (19,840.00) (18,800.00) (16,880.00) (16,620.00) (15,400.00) Net increase (decrease) in cash and cash equivalents........... (18) (19) 16 13 80 57 17 Net cash provided by operating activities............ 61 113 194 153 210 187 108 Ratio of earnings to fixed charges......... 0.82/1 0.87/1 0.86/1 0.74/1 0.97/1 0.84/1 0.76/1
S-20 2736 COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
ORCHARD PARK AIMCO APARTMENTS OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $6.25 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $7.50 $0
S-21 2737 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-22 2738 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $4,328,000 less approximately $873,070 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-23 2739 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-24 2740 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Orchard Park Apartments Limited Partnership have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's property, including the initial construction, which occurred in 1983. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2013 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-25 2741 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-26 2742 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-27 2743 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.6% interest, consisting of a 0% limited partnership interest and a 1.6% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-28 2744 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-29 2745 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. However, no assurance can be given as to future operating results or as to the results of any attempts to sell any property owned by your partnership. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in August 2014. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would S-30 2746 be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require an affirmative vote by holders of more than 50% of the outstanding units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-31 2747 - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $7.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-32 2748 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.80% per annum, which resulted in an increase from the initial capitalization rate of 1.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate resulting in a final capitalization rate of 11.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-33 2749 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $497,676 11.50% $4,328,000
- --------------- (1) The total net operating income is equal to total revenues of $497,676, less total expenses of $659,592 and recurring replacement costs of $51,600. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $4,519. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99.00% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 498,000 Capitalization rate......................................... 11.50% ----------- Gross valuation of partnership properties................... $ 4,328,000 Net Cash Shortfall.......................................... 313,366 Plus: Cash and cash equivalents............................. 184,675 Plus: Other partnership assets, net of security deposits.... 57,316 Less: Mortgage debt, including accrued interest............. (3,777,657) Less: Accounts payable, including accrued expenses.......... (34,046) Less: Other liabilities..................................... (85,865) ----------- Partnership valuation before taxes and certain costs........ 985,789 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (873,070) Less: Closing costs......................................... (108,200) ----------- Estimated net valuation of your partnership................. 4,519 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ----------- Estimated net valuation of units............................ 4,474 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 89 =========== Cash consideration per unit................................. 89 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $89 by the $25 liquidation preference of each Preferred OP Unit to get 3.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $89 by a price of $38.69 to get 2.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-34 2750 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which $4,519 or 0.00% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has increased from $35,000 for the nine months ended September 30, 1997 to $50,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-35 2751 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $89, based on a total estimated value of your partnership's property of $4,328,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $7.50 per year on the number of Preferred OP Units, or distributions of $6.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0 per unit. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your S-36 2752 units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 2753 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 89 Partnership preferred units................................. 89(1) Partnership common units.................................... 89(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 89 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(47,851)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $2,500 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The S-38 2754 liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30.0%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $0 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book (deficit) per unit is $47,851 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-39 2755 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $0 per unit, going concern value of $0 per unit and liquidation value of $0 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents discounts to the offer price of $89. In light of these discounts and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or S-40 2756 expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $1,214,823 Operating Expenses.......................................... (644,646) Replacement Reserves -- Net................................. (52,814) Debt Service................................................ (455,128) Capital Expenditures........................................ (19,900) ---------- Net Cash Flow..................................... $ 42,335 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, S-41 2757 but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. S-42 2758 Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $873,070. Stanger observed that your partnership liquidation value was negative and therefore deemed zero. Stanger observed that we assigned a minimum unit value of $89. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $498,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $10,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 12.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 14.0%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was negative and therefore deemed zero. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no limited partnership units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $89 per unit is equal to management's minimum price value, and reflects an 89% premium to management's estimate of going concern value of $0. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, S-43 2759 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.0%, transaction costs of 2.5% to 5.0%, growth rates of 3.0% and a terminal capitalization rate of 10.5%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the net asset value and liquidation value Stanger adjusted its estimates of value for the cost of adverse market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30.0% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30.0% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more that 75% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $0, $0, and $0, as compared to the $89 offer price. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated S-44 2760 to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-45 2761 YOUR PARTNERSHIP GENERAL Orchard Park Apartments Limited Partnership, is a South Carolina limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in December 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 48 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed in 1983 for the purpose of owning an apartment property located in Greenville, South Carolina, known as "Orchard Park Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1983 and consists of 172 apartment units. There are 80 one-bedroom apartments, and 92 two-bedroom apartments . Your partnership's property had an average occupancy rate of approximately 93.34% in 1998, 97.09% in 1997 and 97.09% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that your partnership's property needs deferred maintenance of $873,000 primarily for roofing, gutters, parking and exterior upgrade. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Budgeted renovations for 1999 total $873,070 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, gutters and downspouts, plumbing, stairwells, drives and parking lot, landscape and irrigation, and drainage. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $526 $534 $519 $484 $450
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $87,127 of $4,600,000 of assessed valuation with a current yearly tax rate of 1.89%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 1.93% of such improvements. S-46 2762 PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partner is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 93% and $506, respectively, at December 31, 1998, compared to 97% and $526, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects rental rates to improve in the near future because the local economy is on an upward swing. In addition, the general partner noted that it expects to spend approximately $873,050 for initial capital expenditures at the property in 1999 to repair the property's roofing, gutters, plumbing, stairwells, parking lots, irrigation and drainage. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. S-47 2763 CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,648,375, payable to Life Insurance Co., which bears interest at a rate of 9.75%. The mortgage debt is due on August 2014. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,675,000 of limited partnership units in 1983. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable to your partnership or any limited partner for any loss or damage that may be caused by any acts performed or any failure to act by any of them if such acts were done in good faith pursuant to authority granted to promote the interests of your partnership, which do not constitute fraud, gross negligence or willful misconduct. Moreover, the general partner is not liable to your partnership or the limited partner because any taxing authorities disallowed or adjusted any deductions or credits in your partnership income tax return. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates are entitled to indemnification by your partnership against any loss or damage resulting from any act or omission performed or omitted in good faith and in accordance with the authority granted to it to promote the interests of your partnership; provided that such acts do not constitute S-48 2764 fraud, gross negligence or intentional misconduct. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $53,500. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that no units have been transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.2% interest in your partnership, including no units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ Not 1994........................................................ Available Not 1995........................................................ Available 1996........................................................ $5,000 1997........................................................ 5,000 1998........................................................ 5,000
S-49 2765 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- Not 1994........................................................ Available 1995........................................................ $61,000 1996........................................................ 61,972 1997........................................................ 57,524 1998........................................................ 61,059
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 2766 SELECTED FINANCIAL INFORMATION OF ORCHARD PARK APARTMENTS L.P. Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Orchard Park Apartments Limited Partnership taken from the financial information described above. The amounts for 1995, 1994 and 1993 have been derived from financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP ------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------- ------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents................ $ 172 $ 155 $ 190 $ 174 $ 161 $ 81 $ 24 Land & Building.......................... 5,620 5,587 5,611 5,518 5,456 5,397 5,331 Accumulated Depreciation................. (3,297) (3,067) (3,124) (2,894) (2,673) (2,460) (2,255) Other Assets............................. 262 257 192 295 217 222 274 ------- ------- ------- ------- ------- ------- ------- Total Assets..................... $ 2,757 $ 2,932 $ 2,869 $ 3,093 $ 3,161 $ 3,240 $ 3,374 ======= ======= ======= ======= ======= ======= ======= Notes Payable............................ $ 3,673 $ 3,765 $ 3,743 $ 3,828 $ 3,906 $ 3,977 $ 4,041 Other Liabilities........................ 162 177 154 240 133 128 136 ------- ------- ------- ------- ------- ------- ------- Total Liabilities................ $ 3,835 $ 3,942 $ 3,897 $ 4,068 $ 4,039 $ 4,105 $ 4,177 ------- ------- ------- ------- ------- ------- ------- Partners Deficit................. $(1,078) $(1,010) $(1,028) $ (975) $ (878) $ (865) $ (803) ======= ======= ======= ======= ======= ======= =======
ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- -------- ---------- ---------- -------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue........................... $ 791 $ 801 $ 1,086 $ 1,103 $ 1,072 $ 1,000 $ 928 Other Income............................. 94 86 129 136 155 166 95 ---------- -------- ---------- ---------- -------- ---------- ---------- Total Revenue.................... $ 885 $ 887 $ 1,215 $ 1,239 $ 1,227 $ 1,166 $ 1,023 ---------- -------- ---------- ---------- -------- ---------- ---------- Operating Expenses....................... $ 424 $ 412 $ 569 $ 642 $ 545 $ 529 $ 464 Depreciation............................. 173 173 230 221 213 205 199 Interest Expense......................... 271 278 372 377 385 390 388 Property Taxes........................... 67 59 97 96 97 104 65 ---------- -------- ---------- ---------- -------- ---------- ---------- Total Expenses................... $ 935 $ 922 $ 1,268 $ 1,336 $ 1,240 $ 1,228 $ 1,116 ---------- -------- ---------- ---------- -------- ---------- ---------- Net loss before ordinary items........... $ (50) $ (35) $ (53) $ (97) $ (13) $ (62) $ (93) Extraordinary Items...................... -- -- -- -- -- -- -- ---------- -------- ---------- ---------- -------- ---------- ---------- Net loss................................. $ (50) $ (35) $ (53) $ (97) $ (13) $ (62) $ (93) ========== ======== ========== ========== ======== ========== ========== Net Income per limited partnership unit................................... $(1,000.00) $(700.00) $(1,040.00) $(1,920.00) $(260.00) $(1,220.00) $(1,840.00) ========== ======== ========== ========== ======== ========== ========== Distributions per limited partnership unit................................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ======== ========== ========== ======== ========== ==========
S-51 2767 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997. NET INCOME Your Partnership incurred a net loss of $50,000 for the nine months ended September 30, 1998, compared to $35,000 for the nine months ended September 30, 1997. The increase in net loss of $15,000 was primarily the result of an increase in operating expenses. These changes are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $885,000 for the nine months ended September 30, 1998, compared to $887,000 for the nine months ended September 30, 1997, a decrease of $2,000. Overall, the change in revenues was flat for the two periods. Rental revenues decreased by $10,000, due primarily to a reduction in average rental rates of 0.8% while occupancy remained at 93%, consistent with the prior period. The decrease in rental revenues was offset by an $8,000 increase in other income. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $424,000 for the nine months ended September 30, 1998, compared to $412,000 for the nine months ended September 30, 1997, an increase of $12,000, or 2.91%. This increase is due to slightly higher advertising and property maintenance costs. Interest expense decreased $7,000, which is the result of a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Property taxes increased $8,000 due to estimated increases in the assessed amount and rate. Depreciation expense for the nine months ended September 30, 1998 was comparable to the similar period in the prior year. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership incurred a net loss of $53,000 for the year ended December 31, 1997, compared to a net loss of $97,000 for the year ended December 31, 1996. The decrease in net loss of $44,000 was primarily the result of a decrease in expenses, offset by a slight decrease in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,215,000 for the year ended December 31, 1997, compared to $1,239,000 for the year ended December 31, 1996, a decrease of $24,000, or 1.94%. The Partnership was able to raise rental rates an average of 2.8%; however, this was partially offset by a 4.2% decrease in occupancy. The Partnership also experienced a $13,000 increase in bad debts during 1997 due to an increase in delinquent tenants and the move-out of tenants with outstanding past due rent. S-52 2768 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $569,000 for the year ended December 31, 1997, compared to $642,000 for the year ended December 31, 1996, a decrease of $73,000 or 11.37%. This decrease is due primarily to lower maintenance expenses as less expensive projects were undertaken at the property during 1997, as compared to 1996. Management expenses totaled $58,000 for the year ended December 31, 1997, compared to $62,000 for the year ended December 31, 1996, a decrease of $4,000, or 6.45%. The decrease resulted from lower revenues as management fees are calculated based on a percentage of revenue. DEPRECIATION EXPENSE Depreciation expense increased $9,000 (4.07%) to $230,000 due primarily to capitalized additions to the investment property during the year ended December 1997. INTEREST EXPENSE Interest expense totaled $372,000 for the year ended December 31, 1997, compared to $377,000 for the year ended December 31, 1996, a decrease of $5,000, or 1.33%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $97,000 for the year ended December 31, 1996, compared to a net loss of $13,000 for the year ended December 31, 1995. The increase in net loss of $84,000 was primarily the result of an increase in operating expenses, partially offset by a slight increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,239,000 for the year ended December 31, 1996, compared to $1,227,000 for the year ended December 31, 1995, an increase of $12,000, or 0.98%. This increase is due primarily to a 2.9% increase in rental rates, offset by decreases in utility collections, laundry and other income. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $642,000 for the year ended December 31, 1996, compared to $545,000 for the year ended December 31, 1995, an increase of $97,000 or 17.8%. This increase is due to extensive interior and exterior maintenance projects undertaken at the property during 1996, with less expensive projects during 1995. Management expenses totaled $62,000 for the year ended December 31, 1996, compared to $61,000 for the year ended December 31, 1995, an increase of $1,000, or 1.64%. DEPRECIATION EXPENSE Depreciation expense increased $8,000 (3.76%) to $221,000 due primarily to capitalized additions to the investment property during the year ended December 13, 1996. S-53 2769 INTEREST EXPENSE Interest expense totaled $377,000 for the year ended December 31, 1996, compared to $385,000 for the year ended December 31, 1995, a decrease of $8,000, or 2%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $172,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $3,673,000. The mortgage requires monthly payments of approximately $38,000 until maturity in August, 2014. The note is collateralized by pledge of land and buildings and has a stated interest rate of 9.75%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 2770 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 50 units of your partnership (up to 12.5 units) for consideration per unit of (i) 3.75 Preferred OP Units, (ii) 2.50 Common OP Units, or (iii) $89 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 2771 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 2772 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 2773 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 2774 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 2775 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 2776 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 2777 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 2778 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 2779 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 2780 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 2781 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 2782 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 2783 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 2784 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 2785 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 2786 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 2787 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2013. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating a joint venture interest in Orchard Park Partnership is to conduct any business that Associates Joint Venture, a South Carolina may be lawfully conducted by a limited joint venture, which owns and operates your partnership organized pursuant to the partnership's property for capital Delaware Revised Uniform Limited Part- appreciation and the production of income. nership Act (as amended from time to time, Subject to restrictions contained in your or any successor to such statute) (the partnership's agreement of limited "Delaware Limited Partnership Act"), partnership, your partnership may perform provided that such business is to be any acts to accomplish the foregoing includ- conducted in a manner that permits AIMCO to ing, without limitation, borrowing funds and be qualified as a REIT, unless AIMCO ceases creating liens. to qualify as a REIT. The AIMCO Operating Partner-
S-72 2788 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership by AIMCO Operating Partnership for any selling not more than 50 units for cash and partnership purpose from time to time to the notes to selected persons who fulfill the limited partners and to other persons, and requirements set for your partnership's to admit such other persons as additional agreement of limited partnership. The limited partners, on terms and conditions capital contribution need not be equal for and for such capital contributions as may be all limited partners and no action or established by the general partner in its consent is required in connection with the sole discretion. The net capital admission of any additional limited contribution need not be equal for all OP partners. Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or make loans to your partnership as the contribute funds or other assets to its general partner, in its sole discretion, subsidiaries or other persons in which it deems necessary for payment of any has an equity investment,
S-73 2789 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership obligations and expenses. Such and such persons may borrow funds from the loans will bear interest charged at a rate AIMCO Operating Partnership, on terms and 1% above the prime interest rate of Citibank conditions established in the sole and N.A., New York, New York, but in no event absolute discretion of the general partner. will exceed the maximum legal rate and will To the extent consistent with the business be repaid from the first net revenues from purpose of the AIMCO Operating Partnership operations available prior to any and the permitted activities of the general distributions to limited partners. Your partner, the AIMCO Operating Partnership may partnership may not contract with the transfer assets to joint ventures, limited general partner and its affiliates other liability companies, partnerships, than as set forth in your partnership's corporations, business trusts or other agreement of limited partnership, nor make business entities in which it is or thereby loans to the general partner. becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and, if security contains no restrictions on borrowings, and is required therefor, to mortgage or subject the general partner has full power and to any other security device any partnership authority to borrow money on behalf of the assets upon such terms and in such amounts AIMCO Operating Partnership. The AIMCO as the general partner deems, in its Operating Partnership has credit agreements reasonable discretion, to be in the best that restrict, among other things, its interests of your partnership. ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles limited partners and written demand with a statement of the their representatives to inspect and examine purpose of such demand and at such OP the books and records of account at the Unitholder's own expense, to obtain a principal place of business of your current list of the name and last known partnership or such other place or places as business, residence or mailing address of may be determined from the general partner the general partner and each other OP from time to time during normal business Unitholder. hours upon reasonable notice.
Management Control The general partner of your partnership is All management powers over the business and solely responsible for the management of affairs of the AIMCO Operating Partnership your partnership's business with all rights are vested in AIMCO-GP, Inc., which is the and powers generally conferred by law or general partner. No OP Unitholder has any necessary, advisable or consistent in right to participate in or exercise control connection therewith. The general partner or management power over the business and must perform such reasonable acts as may be affairs of the AIMCO Operating Partner- consis-
S-74 2790 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tent with good business practices in its ship. The OP Unitholders have the right to performance as general partner. No limited vote on certain matters described under partner may take part in or interfere in any "Comparison of Your Units and AIMCO OP manner with the conduct or control of the Units -- Voting Rights" below. The general business of your partnership or have the partner may not be removed by the OP right or authority to act for or bind your Unitholders with or without cause. partnership. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable to your partnership or any limited to the AIMCO Operating Partnership for partner for any loss or damage that may be losses sustained, liabilities incurred or caused by any acts performed or any failure benefits not derived as a result of errors to act by any of them if such acts were done in judgment or mistakes of fact or law of in good faith pursuant to authority granted any act or omission if the general partner to promote the interests of your acted in good faith. The AIMCO Operating partnership, which do not constitute fraud, Partnership Agreement provides for gross negligence or willful misconduct. indemnification of AIMCO, or any director or Moreover, the general partner is not liable officer of AIMCO (in its capacity as the to your partnership or the limited partner previous general partner of the AIMCO because any taxing authorities disallowed or Operating Partnership), the general partner, adjusted any deductions or credits in your any officer or director of general partner partnership income tax return. In addition, or the AIMCO Operating Partnership and such the general partner and its affiliates are other persons as the general partner may entitled to indemnification by your designate from and against all losses, partnership against any loss or damage claims, damages, liabilities, joint or resulting from any act or omission performed several, expenses (including legal fees), or omitted in good faith and in fines, settlements and other
S-75 2791 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP accordance with the authority granted to it amounts incurred in connection with any to promote the interests of your actions relating to the operations of the partnership; provided that such acts do not AIMCO Operating Partnership, as set forth in constitute fraud, gross negligence or the AIMCO Operating Partnership Agreement. intentional misconduct. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, a general partner of partner has exclusive management power over your partnership may be removed for fraud, the business and affairs of the AIMCO gross negligence or willful misconduct upon Operating Partnership. The general partner the affirmative vote of the limited partners may not be removed as general partner of the owning more than 50% of the outstanding AIMCO Operating Partnership by the OP units. Such affirmative vote is also Unitholders with or without cause. Under the required to elect a substitute general AIMCO Operating Partnership Agreement, the partner. A general partner may resign if general partner may, in its sole discretion, such resignation does not cause a default prevent a transferee of an OP Unit from under or result in the acceleration of the becoming a substituted limited partner repayment of any loan secured by your pursuant to the AIMCO Operating Partnership partnership's property and sixty days prior Agreement. The general partner may exercise to the effective date of such resignation this right of approval to deter, delay or the general partner nominates a substitute hamper attempts by persons to acquire a general partner willing and able to serve as controlling interest in the AIMCO Operating such. A limited partner may not transfer his Partnership. Additionally, the AIMCO interests in your partnership without the Operating Partnership Agreement contains consent of the general partner. restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the limited partners owning at least 20% of Agreement, whereby the general partner may, the then outstanding limited partnership without the consent of the OP Unitholders, interests. Approval by a majority of the amend the AIMCO Operating Partnership then outstanding limited partnership Agreement, amendments to the AIMCO Operating interests is necessary to effect an Partnership Agreement require the consent of amendment to your partnership's agreement of the holders of a majority of the outstanding limited partnership. The general partner may Common OP Units, excluding AIMCO and certain amend your partnership's agreement of other limited exclusions (a "Majority in limited partnership as required by law or necessary
S-76 2792 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP to effect changes which do not adversely Interest"). Amendments to the AIMCO affect the rights or increase the Operating Partnership Agreement may be obligations of limited partners. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership and applicable law, a gross negligence, no OP Unitholder has limited partner, unless he is deemed to be personal liability for the AIMCO Operating taking part in the control of the business, Partnership's debts and obligations, and is not bound by or personally liable for any liability of the OP Unitholders for the of the expenses, liabilities or obligations AIMCO Operating Partnership's debts and of your partnership beyond the amount obligations is generally limited to the contributed by the limited partner to the amount of their investment in the AIMCO capital of your partnership, its notes for Operating Partnership. However, the capital contributions to your partnership, limitations on the liability of limited the limited partner's share of undistributed partners for the obligations of a limited profits of your partnership and any property partnership have not been clearly wrongly paid or convey to him on account of established in some states. If it were his contribution, including, but not limited determined that the AIMCO Operating Part- to, money or property to which creditors nership had been conducting business in any were legally entitled. state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-77 2793 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner has relevant partnership agreement, Delaware law an overriding fiduciary obligation to your generally requires a general partner of a partnership. However, your partnership's Delaware limited partnership to adhere to agreement of limited partnership provides fiduciary duty standards under which it owes that any partner or affiliate may engage in its limited partners the highest duties of or possess an interest in other business good faith, fairness and loyalty and which ventures of every nature and description, generally prohibit such general partner from including the acquisition, ownership, taking any action or engaging in any financing, leasing, operation, management, transaction as to which it has a conflict of syndication, brokerage, sale, construction interest. The AIMCO Operating Partnership and development of real property, which may Agreement expressly authorizes the general be located in the market area or vicinity of partner to enter into, on behalf of the your partnership's property and neither your AIMCO Operating Partnership, a right of partnership nor any other partners will have first opportunity arrangement and other any rights in or to such independent conflict avoidance agreements with various ventures or the income or profits derived affiliates of the AIMCO Operating therefrom. In addition, the general partner Partnership and the general partner, on such is not required to devote all of its time or terms as the general partner, in its sole business efforts to the affairs of your and absolute discretion, believes are partnership, but must devote so much of its advisable. The AIMCO Operating Partnership time and attention to your partnership as is Agreement expressly limits the liability of necessary and advisable to successfully the general partner by providing that the manage the affairs of your partnership. general partner, and its officers and directors will not be liable or accountable In general, your partnership's agreement of in damages to the AIMCO Operating limited partnership and the AIMCO Operating Partnership, the limited partners or as- Partnership Agreement have limitations on signees for errors in judgment or mistakes the liability of the general partner but of fact or law or of any act or omission if such limitations differ in terms and provide the general partner or such director or more protection for the general partner of officer acted in good faith. See the AIMCO Operating Partnership. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-78 2794 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital
S-79 2795 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights An affirmative vote by Except as otherwise required Under the AIMCO Operating holders of more than 50% of by applicable law or in the Partnership Agreement, the the outstanding units is AIMCO Operating Partnership OP Unitholders have voting necessary for the sale of Agreement, the holders of rights only with respect to your partnership's property, the Preferred OP Units will certain limited matters such the sale or other disposal have the same voting rights as certain amendments and of all or substantially all as holders of the Common OP termination of the AIMCO of the assets of your Units. See "Description of Operating Partnership partnership, an amendment to OP Units" in the accompany- Agreement and certain your partnership's agreement ing Prospectus. So long as transactions such as the of limited partnership, the any Preferred OP Units are institution of bankruptcy removal of the general outstanding, in addition to proceedings, an assignment partner for fraud, gross any other vote or consent of for the benefit of creditors negligence or willful partners required by law or and certain transfers by the misconduct, the election and by the AIMCO Operating general partner of its admission of a substitute Partnership Agreement, the interest in the AIMCO general partner upon the affirmative vote or consent Operating Partnership or the retirement of the general of holders of at least 50% admission of a successor partner, the election of a of the outstanding Preferred general partner. trustee to liquidate and OP Units will be necessary distribute your for effecting any amendment Under the AIMCO Operating partnership's assets in of any of the provisions of Partnership Agreement, the certain circumstances and the Partnership Unit general partner has the the dissolution of your Designation of the Preferred power to effect the partnership before the OP Units that materially and acquisition, sale, transfer, expiration of its terms. The adversely affects the rights exchange or other consent of the general part- or preferences of the disposition of any assets of ner also required to sell holders of the Preferred OP the AIMCO Operating your partnership's property, Units. The creation or Partnership (including, but sell or dispose of all or issuance of any class or not limited to, the exercise substantially all of the series of partnership units, or grant of any conversion, assets of your partnership, including, without option, privilege or amend your partnership's limitation, any partner- subscription right or any agreement of limited ship units that may have other right available in partnership and terminate rights senior or superior to connection with any assets your partnership. the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) The general partner may materially adversely affect or the merger, cause the dissolution of the rights or preferences of consolidation, your partnership by retiring the holders of Preferred OP reorganization or other unless all of the limited Units. With respect to the combination of the AIMCO partners agree to continue exercise of the above Operating Partnership with your partnership and elect a described voting rights, or into another entity, all successor to the general each Preferred OP Units without the consent of the partner by a vote of the shall have one (1) vote per OP Unitholders. holders of more than 50% of Preferred OP Unit. the then outstanding units. The general partner may cause the dissolution of the In general, you have greater AIMCO Operating Partnership voting rights in your by an "event of withdrawal," partnership than you will as defined in the Delaware have as an OP Unitholder. OP Limited Partnership Act Unitholders cannot remove (including, without limi- the general partner of the tation, bankruptcy), unless, AIMCO Operating Partnership.
S-80 2796 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tribution from Net Cash From at the rate of $0.50 per or such portion as the Operations are distributed Preferred OP Unit; provided, general partner may in its not less often than however, that at any time sole and absolute discretion quarterly. Any proceeds and from time to time on or determine, of Available Cash received from the sale or after the fifth anniversary (as defined in the AIMCO refinancing of your partner- of the issue date of the Operating Partnership ship's property will be Preferred OP Units, the Agreement) generated by the distributed in accordance AIMCO Operating Partnership AIMCO Operating Partnership with your partnership's may adjust the annual during such quarter to the agreement of limited part- distribution rate on the general partner, the special nership. The distributions Preferred OP Units to the limited partner and the payable to the partners are lower of (i) 2.00% plus the holders of Common OP Units not fixed in amount and annual interest rate then on the record date es- depend upon the operating applicable to U.S. Treasury tablished by the general results and net sales or notes with a maturity of partner with respect to such refinancing proceeds five years, and (ii) the quarter, in accordance with available from the annual dividend rate on the their respective interests disposition of your part- most recently issued AIMCO in the AIMCO Operating nership's assets. non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the Such distributions will be
S-81 2797 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cumulative from the date of future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his interests to for the Preferred OP Units for the OP Units. The AIMCO any other person and be and the Preferred OP Units Operating Partnership substituted by such trans- are not listed Agreement re-
S-82 2798 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS feree if such transfer is on any securities exchange. stricts the transferability made in compliance with the The Preferred OP Units are of the OP Units. Until the securities law and in your subject to restrictions on expiration of one year from partnership's agreement of transfer as set forth in the the date on which an OP limited partnership, the AIMCO Operating Partnership Unitholder acquired OP transferee makes the repre- Agreement. Units, subject to certain sentations required by your exceptions, such OP partnership's agreement of Pursuant to the AIMCO Unitholder may not transfer limited partnership, a Operating Partnership all or any portion of its OP written instrument Agreement, until the Units to any transferee evidencing the transfer is expiration of one year from without the consent of the duly executed and the date on which a holder general partner, which acknowledged, the interest of Preferred OP Units consent may be withheld in transferred is not less than acquired Preferred OP Units, its sole and absolute one unit, except in limited subject to certain discretion. After the circumstances consent may be exceptions, such holder of expiration of one year, such withheld, the general Preferred OP Units may not OP Unitholder has the right partner consents which in transfer all or any portion to transfer all or any the sole discretion of the of its Preferred OP Units to portion of its OP Units to general partner, the any transferee without the any person, subject to the transfer fee is paid and consent of the general satisfaction of certain con- such additional conditions partner, which consent may ditions specified in the as are set forth in your be withheld in its sole and AIMCO Operating Partnership partnership's agreement of absolute discretion. After Agreement, including the limited partnership are the expiration of one year, general partner's right of satisfied. such holders of Preferred OP first refusal. See Units has the right to "Description of OP Units -- There are no redemption transfer all or any portion Transfers and Withdrawals" rights associated with your of its Preferred OP Units to in the accompanying units. any person, subject to the Prospectus. satisfaction of certain conditions specified in the After the first anniversary AIMCO Operating Partner- of becoming a holder of ship Agreement, including Common OP Units, an OP the general partner's right Unitholder has the right, of first refusal. subject to the terms and conditions of the AIMCO After a one-year holding Operating Partnership period, a holder may redeem Agreement, to require the Preferred OP Units and AIMCO Operating Partnership receive in exchange to redeem all or a portion therefor, at the AIMCO Oper- of the Common OP Units held ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to acquire some or all of the ten-
S-83 2799 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 2800 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 2801 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 2802 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 2803 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 2804 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 2805 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 2806 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 2807 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-92 2808 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 2809 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $5,000 in 1996, $5,000 in 1997 and $5,000 in 1998. The property manager received management fees of $61,972 in 1996, $57,524 in 1997 and $61,058 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 2810 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,113 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 2811 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-96 2812 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Consolidated Balance Sheet as of September 30, 1998 (unaudited).......................................... F-2 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)...... F-3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)...... F-4 Notes to Condensed Consolidated Financial Statements (unaudited)............................................... F-4 Consolidated Balance Sheets as of December 31, 1997 (unaudited)............................................... F-5 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 (unaudited).................... F-6 Consolidated Statement of Changes in Partners' Deficit for the years ended December 31, 1997 and 1996 (unaudited).... F-7 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited).................... F-8 Notes to Consolidated Financial Statements (unaudited)...... F-9
F-1 2813 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 172 Other assets................................................ 262 Investment property: Land...................................................... $ 619 Building and related personal property.................... 5,001 ------- 5,620 ------- Less: Accumulated depreciation............................ (3,297) 2,323 ------- ------- Total assets...................................... $ 2,757 ======= LIABILITIES AND PARTNERS' DEFICIT Accounts payable and accrued liabilities.................... $ 162 Notes payable............................................... 3,673 Partners' deficit................................. (1,078) ------- Total liabilities and partners' deficit........... $ 2,757 =======
See accompanying note. F-2 2814 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ----- ----- Revenues: Rental income............................................. $791 $801 Other income.............................................. 94 86 ---- ---- Total revenues.................................... 885 887 Expenses: Operating expenses........................................ 424 412 Depreciation expense...................................... 173 173 Interest expense.......................................... 271 278 Property tax expense...................................... 67 59 ---- ---- Total expenses.................................... 935 922 Net loss.......................................... $(50) $(35) ==== ====
See accompanying note. F-3 2815 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ----- ----- Operating activities: Net loss.................................................. $(50) $(35) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................. 173 173 Changes in accounts: Receivables and deposits and other assets.............. (70) 38 Accounts payable and accrued expenses.................. 8 (63) ---- ---- Net cash provided by operating activities......... 61 113 Investing activities: Property improvements and replacements.................... (9) (69) ---- ---- Net cash used in investing activities..................... (9) (69) Financing activities: Payments on mortgage...................................... (70) (63) ---- ---- Net cash used in financing activities..................... (70) (63) ---- ---- Net increase (decrease) in cash and cash equivalents...... (18) (19) Cash and cash equivalents at beginning of year............ 190 174 ---- ---- Cash and cash equivalents at end of period................ $172 $155 ==== ====
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Orchard Park Apartments Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 2816 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET -- UNAUDITED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 190 Receivables and deposits.................................... 39 Other assets................................................ 153 Investment property (Notes B and D): Land...................................................... $ 619 Buildings and related personal property................... 4,992 ------- 5,611 Less accumulated depreciation............................. (3,124) 2,487 ------- ------- $ 2,869 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable and other accrued liabilities............ $ 154 Mortgage note payable (Notes B and D)..................... 3,743 ------- 3,897 Partners' deficit: General partner........................................... $ (36) Limited partners (50 units issued and outstanding)........ (992) (1,028) ------- ------- $ 2,869 =======
See accompanying notes. F-5 2817 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, ------------------- 1997 1996 ------- ------- Revenues: Rental income............................................. $ 1,086 $ 1,103 Other income.............................................. 129 136 ------- ------- 1,215 1,239 Expenses: Operating................................................. $ 569 $ 642 Depreciation.............................................. 230 221 Interest.................................................. 372 377 Property taxes............................................ 97 96 ------- ------- 1,268 1,336 ------- ------- Net loss.......................................... $ (53) $ (97) ======= ======= Net loss allocated to general partners (1%)................. (1) (1) Net loss allocated to limited partners (99%)................ (52) (96) ------- ------- $ (53) $ (97) ======= ======= Net loss per limited partnership unit............. $(1,040) $(1,920) ======= =======
See accompanying notes. F-6 2818 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- UNAUDITED (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL -------- -------- ------- Deficit at December 31, 1995................................ $(34) $(844) $ (878) Net loss for the year ended December 31, 1996............. (1) (96) (97) ---- ----- ------- Deficit at December 31, 1996................................ (35) (940) (975) Net loss for the year ended December 31, 1997............. (1) (52) (53) ---- ----- ------- Deficit at December 31, 1997................................ $(36) $(992) $(1,028) ==== ===== =======
See accompanying notes. F-7 2819 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------- 1997 1996 ---- ---- Cash flows from operating activities Net loss.................................................. $(53) $(97) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 230 221 Change in accounts: Receivables and deposits and other assets............ 103 (78) Accounts payable and other liabilities............... (86) 107 ---- ---- Net cash provided by operating activities......... 194 153 Cash flows from investing activities Property improvements and replacements.................... (93) (62) Net cash used in investing activities............. (93) (62) Cash flows from financing activities Principal payments on mortgage note payable............... (85) (78) Net cash used in financing activities............. (85) (78) ---- ---- Net increase (decrease) in cash and cash equivalents...... 16 13 Cash and cash equivalents at beginning of year............ 174 161 ---- ---- Cash and cash equivalents at end of year.................. $190 $174 ==== ==== Supplemental disclosure of cash flow information Cash paid for interest.................................... $372 $377 ==== ====
See accompanying notes. F-8 2820 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of constructing, owning and operating the Orchard Park Apartments in Greenville, South Carolina. Fifty units of limited partnership interests and a general partner interest were issued. The Partnership shall terminate on December 31, 2013, unless terminated sooner, pursuant to the agreement. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership and its 99% general partnership interest in Orchard Park Associates Joint Venture. All significant intercompany accounts have been eliminated in consolidation. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the years ended December 31, 1997 or 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Loan Costs Loan costs incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. F-9 2821 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Partnership Allocations Net income or losses are allocated 99% to the limited partners and 1% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the general and limited partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. NOTE B -- MORTGAGE NOTE PAYABLE Mortgage note payable consists of the following:
(IN THOUSANDS) -------------- Mortgage note payable to a lending institution bearing interest of 9.75% per annum. Monthly payments of principal and interest of approximately $38,000 are due through August, 2014.............................................. $3,743 ======
Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998........................................................ $ 94 1999........................................................ 104 2000........................................................ 115 2001........................................................ 126 2002........................................................ 139 Thereafter.................................................. 3,165 ------ $3,743 ======
The apartment property is pledged as collateral on the mortgage note. F-10 2822 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on affiliates of Amreal Corporation, one of the general partners of Orchard Park Associates Joint Venture, for the administration and management of all partnership activities. Affiliates of Insignia Financial Group, Inc. ("Insignia"), who is an affiliate of Amreal Corporation, provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates (in thousands):
1997 1996 ---- ---- Property management fees.................................... $58 $62 Reimbursement for investor services, asset management and partnership accounting.................................... 5 5
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ------------- ---------------- Orchard Park Apts. Greenville, SC............................... $3,743 $619 $4,554 $438
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ------------- ------ ------------ -------- ----------- Orchard Park....................... $619 $4,992 $5,611 $3,124 1984 5-30
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands):
1997 1996 ------ ------ Investment Property Balance at beginning of year.............................. $5,518 $5,456 Property improvements..................................... 93 62 ------ ------ Balance at end of year............................ $5,611 $5,518 ====== ====== Accumulated Depreciation Balance at beginning of year.............................. $2,894 $2,673 Additions charged to expense.............................. 230 221 ------ ------ Balance at end of year............................ $3,124 $2,894 ====== ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 and 1996 is $5,611,000 and $5,518,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 and 1996 is $4,483,000 and $4,226,000, respectively. F-11 2823 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data):
1997 1996 ------- ------- Net loss as reported........................................ $ (53) $ (97) Deduct: Depreciation differences.................................. (27) (27) ------- ------- Federal taxable loss........................................ $ (80) $ (124) ======= ======= Federal taxable loss per limited partnership unit........... $(1,584) $(2,455) ======= =======
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities at December 31, 1997 (in thousands):
Net deficit as reported..................................... $(1,028) Accumulated depreciation.................................... (1,359) Other....................................................... 59 Syndication fees............................................ 234 ------- Net deficit -- tax basis.......................... $(2,094) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired Amreal Corporation. F-12 2824 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 2825 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 2826 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 2827 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 2828 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 2829 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 2830 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 2831 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 2832 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 2833 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 2834 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 2835 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 2836 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 2837 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 2838 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 2839 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 2840 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 2841 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 2842 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 2843 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 2844 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 2845 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 2846 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 2847 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 2848 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 2849 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 2850 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 2851
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 2852 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 2853
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 2854 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 2855 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 2856 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 2857
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 2858 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 2859 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 2860 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 2861
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 2862 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 2863 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 2864 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 2865 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 2866 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 2867 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 2868 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 2869 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 2870 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 2871 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 2872 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 2873 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 2874 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Orchard Park Apartments Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Orchard Park Apartments Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $89 in cash, or 2.50 Common OP Units of the Purchaser, or 3.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 2875 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 2876 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 2877 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 2878
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 2879
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 2880
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 2881
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 2882 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 2883 SUBJECT TO COMPLETION, DATED MARCH , 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Park Towne Place Associates Limited Partnership in exchange for your choice of: 328.50 of our 8.0% Class Two Partnership Preferred Units; 212.25 of our Partnership Common Units; or $8,208 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $8,208 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 2884 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Park Towne Place Associates Limited Partnership....... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59
i 2885
PAGE ----- Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 2886 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"),AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a controlling ownership interest in the general partner of your partnership, Winthrop Securities, Co., Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $51,000,000, less approximately $9,418,034 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 2887 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 2888 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2035 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 2889 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 2890 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has $34,557,552 of balloon payments due on its mortgage debt in November 2006. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 2891 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage note is due in November 2006 and require a balloon payment of $34,557,552. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 2892 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $657.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $530.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 2893 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 2894 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.13% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.79%, resulting in a final capitalization rate of 9.46%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 4,826,000 Capitalization rate......................................... 9.46% ------------ Gross valuation of partnership property..................... $ 51,000,000 Plus: Cash and cash equivalents............................. 750,559 Plus: Other partnership assets, net of security deposits.... 2,632,744 Less: Mortgage debt, including accrued interest............. (38,513,760) Less: Accounts payable and accrued expenses................. (854,454) Less: Other liabilities..................................... (661,495) ------------ Partnership valuation before taxes and certain costs........ 14,353,594 Less: Disposition fees...................................... (510,000) Less: Extraordinary capital expenditures and deferred maintenance............................................... (9,418,034) Less: Closing costs......................................... (1,275,000) ------------ Estimates net valuation of your partnership................. 3,150,560 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ------------ Estimated net valuation of units............................ 3,119,054 Total number of units............................. 380.0 ------------ Estimated valuation per unit................................ 8,208 ============ Cash consideration per unit................................. $ 8,208 ============
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $8,208 by the $25 liquidation preference of each Preferred OP Unit to get 328.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $8,208 by a price of $38.69 to get 212.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 2895 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 8,208 Partnership Preferred Units................................. $ 8,208 Partnership Common Units.................................... $ 8,208 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 8,208 Estimated going concern value............................. 2,778 Alternative going concern value(1)........................ 3,662 Net book value (deficit).................................. $(11,148)
- --------------- (1) Assumes sale of property when a balloon payment is due instead of refinancing the mortgages. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A S-10 2896 and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Park Towne Place Associates Limited Partnership is a Delaware limited partnership which was formed on October 18, 1985 for the purpose of owning and operating a single apartment property located in Philadelphia, Pennsylvania, known as "Park Towne Apartments." Park Towne Apartments consists of 973 units and was built in 1959. Your partnership has no employees. As of September 30, 1998, there were 380 units of limited partnership interest issued and outstanding, which were held of record by 446 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $38,000,000 of limited partnership units in 1986. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $0 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2035, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $37,938,212, payable to First Union and La Salle, which bears interest at the rate of 9.13%. The mortgage debt is due in November 2006. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 2897 THE OFFER In exchange for each of your units, we are offering you a choice of: - 328.50 of our Class Two Partnership Preferred Units; - 212.25 of our Partnership Common Units; or - $8,208 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 380 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 328.50 Preferred OP Units, 212.25 Common OP Units, or $8,208 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 2898 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 2899 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $8,208 in cash, 328.50 Preferred OP Units or 212.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 2900 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $8,208. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $57,624 for the fiscal year ended December 31, 1998. The property manager received management fees of $347,448 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $770,403 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 2901 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 2902
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 2903 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 2904
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 2905 SUMMARY FINANCIAL INFORMATION OF PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Park Towne Place Associates Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Park Towne Place Associates Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues.............. $ 8,507,728 $ 8,144,368 $10,859,157 $10,255,443 $10,263,857 $ 9,971,517 $10,302,889 Net Loss.................... (363,776) (1,282,804) (1,710,405) (1,815,532) (1,081,208) (2,803,531) (2,302,967) Net Income (Loss) per limited partnership unit...................... (909.44) (3,207.01) (4,272.00) (4,539.00) (2,703.02) (7,008.83) (5,757.42) Distributions per limited partnership unit.......... -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital).................. -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents... $ 770,350 $ 1,185,818 $ 750,559 $ 1,210,238 $ 507,041 $ 253,549 $ 719,460 Real Estate, Net of Accumulated Depreciation.............. $30,495,473 $31,908,008 $31,526,794 $33,051,649 $32,484,504 $34,209,417 $35,905,032 Total Assets................ $34,841,775 $36,265,042 $35,795,181 $37,674,625 $34,509,825 $35,647,274 $37,840,800 Notes Payable............... $38,011,377 $38,285,744 $38,221,155 $38,479,512 $33,671,066 $33,689,089 $33,885,216 General Partners' Capital (Deficit)................... $(5,908,092) $ (683,997) $(2,540,262) $(2,454,742) $(2,363,965) $(2,309,908) $(2,169,729) Limited Partners' Capital (Deficit)................... $ 1,307,987 $(2,914,730) $(1,696,067) $ (71,182) $ 1,653,574 $ 2,680,722 $ 5,344,076 Partners' Capital (Deficit)... $(4,600,105) $(3,808,728) $(4,236,329) $(2,525,924) $ (710,392) $ 370,814 $ 3,174,347 Total Distributions........... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Book value per limited partnership unit............ $ 3,442.07 $ (7,670.34) $ (4,463.33) $ (187.32) $ 4,351.51 $ 7,054.53 $ 14,063.36 Net increase (decrease) in cash and cash equivalents... $ 176,093 $ (260,441) $ (347,254) $ 694,596 $ 498,013 $ (405,911) $ 719,460 Net cash provided by operating activities.................. $ 1,061,907 $ 555,643 $ 885,864 $ (201,297) $ 1,362,265 $ (388,097) $ 103,067 Ratio of earnings to fixed charges..................... 0.86/1 0.51/1 0.51/1 0.51/1 0.67/1 0.29/1 0.45/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
PARK TOWNE PLACE AIMCO ASSOCIATES OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $530.63 $0.00 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $657.00 $0.00
S-20 2906 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 2907 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $51,000,000 less approximately $9,418,034 of deferred maintenance and investment not considered by the appraiser. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 2908 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 2909 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2035 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 2910 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 2911 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $34,557,552 of balloon payment due on its mortgage debt in November 2006. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 2912 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .30% interest, consisting of a .30% limited partnership interest and a 0% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 2913 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 2914 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage note is due in November 2006 and require a balloon payment totaling $34,557,552. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable S-29 2915 income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $657 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 2916 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $530.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 2917 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 9.13% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.79%, resulting in a final capitalization rate of 9.46%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Park Towne Apartments.................... $4,826,000 9.46% $51,000,000 -----------
S-32 2918 - --------------- (1) The total net operating income is equal to total revenues of $10,839,422, less total expenses of $5,719,760 and recurring replacement costs of $294,000. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $3,150,560. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 4,826,000 Capitalization rate......................................... 9.46% ------------ Gross valuation of partnership property..................... $ 51,000,000 Plus: Cash and cash equivalents............................. 750,559 Plus: Other partnership assets, net of security deposits.... 2,632,744 Less: Mortgage debt, including accrued interest............. (38,513,760) Less: Accounts payable and accrued expenses................. (854,454) Less: Other liabilities..................................... (661,495) ------------ Partnership valuation before taxes and certain costs........ 14,353,594 Less: Disposition fees...................................... (510,000) Less: Extraordinary capital expenditures and deferred maintenance............................................... (9,418,034) Less: Closing costs......................................... (1,275,000) ------------ Estimated net valuation of your partnership................. 3,150,560 Percentage of estimated net valuation allocated to holders of units.................................................. 99.00% ------------ Estimated net valuation of units............................ 3,119,054 Total number of units............................. 380.0 ------------ Estimated valuation per unit................................ 8,208 ============ Cash consideration per unit................................. $ 8,208 ============
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $8,208 by the $25 liquidation preference of each Preferred OP Unit to get 328.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $8,208 by a price of $38.69 to get 212.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $3,150,560 or 0.55% is the net valuation of your partnership. S-33 2919 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has decreased from $(1,282,804) for the nine months ended September 30, 1997 to $(363,776) for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 2920 11. The estimated unit value of $8,208, based on a total estimated value of your partnership's property of $51,000,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's indebtedness. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $530.63 per year on the number of Preferred OP Units, or distributions of $530.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. No distributions were paid with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 2921 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 2922 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 8,208 Partnership preferred units................................. 8,208(1) Partnership common units.................................... 8,208(1) Alternatives: Prices on secondary market................................ Not Available Estimated liquidation proceeds............................ $ 8,208 Estimated going concern value............................. $ 2,778 Net book value (deficit).................................. $(11,148) Alternative going concern value........................... $ 3,662(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when a balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Appraisals Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $5,000 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. S-37 2923 Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30.0%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $2,778 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. S-38 2924 Your partnership's property currently has balloon payments due in November 2006. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $3,662 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is ($11,148) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $7,783 per unit, going concern value of $7,540 per unit and liquidation value of $4,239 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(425), $(668) and $(3,969). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-39 2925 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general S-40 2926 market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $11,487,865 Operating Expenses.......................................... (6,169,180) Replacement Reserves -- Net................................. (1,417,379) Debt Service................................................ (3,758,976) Capital Expenditures........................................ (23,000) ----------- Net Cash Flow..................................... $ 119,330 ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In fact, actual revenues for the partnership for the year ended December 31, 1998 were less than the budget amounts. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. S-41 2927 Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 9.46%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $9,418,034. Stanger observed that your partnership liquidation value of $3,150,560 was allocated 98% to the limited partners and divided by the total units outstanding of 380 to provide the liquidation value per unit of $8,208. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $4,826,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $105,000 per annum; (ii) cash reserves, and (iii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of approximately 12%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 380 to achieve management's estimate of going concern value of $2,778 per unit. S-42 2928 Review of Secondary Market Prices. [Stanger maintains a database of secondary market information. Stanger observed for its data that no limited partnership units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $8,208 per unit is equal to management's estimate of liquidation value, and reflects a substantial premium to management's estimate of going concern value of $2,778. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 9.75% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.25%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.2% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $7,783, $7,540, and $4,239 representing premiums (discounts) to the offer price of (5)%, (8)% and (48)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the S-43 2929 units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after S-44 2930 such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Park Towne Place Associates Limited Partnership is a Delaware limited partnership which completed a private offering in 1986. Insignia acquired the general partner of your partnership in November 1997. AIMCO acquired Insignia in October 1998. There are currently a total of 446 limited partners of your partnership and a total of 380 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 18, 1985 for the purpose of owning an apartment property located in Philadelphia, Pennsylvania, known as "Park Towne Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1959 and consists of 973 apartment units. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that your partnership's property needs deferred maintenance of $9,418,034 primarily for window replacement, elevators, HUAC and driveways and parking lots. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusted and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the S-45 2931 future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Budgeted renovations or improvements for 1999 total $9,418,034 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $896 $853 $847 $827 $849
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $1,092,170 of $41,300,000 of assessed valuation with a current yearly tax rate of 2.64%. When the proposed improvements are made it is anticipated that the yearly tax rate may be approximately 2.64% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2035 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could S-46 2932 potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $913, respectively, at December 31, 1998, compared to 91% and $896, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because the property's location in downtown Philadelphia's growing economic strength. In addition, the general partner noted that it expects to spend approximately $9,418,034 for capital replacements/capital improvements at the property in 1999-2000 to repair/improve the property's interior and exterior as detailed in the attached report from Adjuster's International. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $37,938,212, payable to First Union and La Salle, which bears interest at the rate of 9.13%. The mortgage debt is due in November 2006. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $38,000,000 of limited partnership units in 1986 for $10,000 per unit. Your partnership currently owns one apartment property. S-47 2933 Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2035, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they believed in good faith that such act or omission was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct on the part of the general partner. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner and its affiliates against and from any loss, liability, cost or expenses (including reasonable attorneys' fees) or damage sustained by them in connection with your partnership provided that such loss, liability, cost or expense or damage was not the result of negligence or misconduct on the part of the general partners or such persons. The general partner, its affiliates and any placing broker will not be indemnified for liabilities arising under Federal and state securities laws unless (1) there has been a successful adjudication on the merits of each count involving securities law violations, (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (3) a court of competent jurisdiction approves settlement of the claims. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect to the issue of indemnification for securities law violations. Such indemnity will be paid from, and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership will not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is herein prohibited from being indemnified. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $10,000. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's S-48 2934 agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 0 0 0 1998......................... 3 0.79% 5
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .30% interest in your partnership, including 0 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $190,405 1995........................................................ 95,634 1996........................................................ 95,634 1997........................................................ 86,251 1998........................................................ 57,624
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ $202,870 1996........................................................ 203,451 1997........................................................ 196,956 1998........................................................ 347,448
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 2935 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, --------------------------- ------------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Cash and Cash Equivalents.......... $ 770,350 $ 1,185,818 $ 750,559 $ 1,210,238 $ 507,041 $ 253,549 $ 719,460 Land & Building........ 60,806,024 59,633,964 59,898,899 58,839,159 55,820,226 55,101,665 54,428,778 Accumulated Depreciation......... (30,310,551) (27,725,956) (28,372,105) (25,787,510) (23,335,722) (20,892,248) (18,523,746) Other Assets........... 3,071,205 3,171,217 3,169,383 3,176,718 1,273,759 1,184,308 1,216,308 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Assets... $ 34,841,775 $ 36,265,042 $ 35,795,181 $ 37,674,625 $ 34,509,825 $ 35,647,274 $ 37,840,800 ============ ============ ============ ============ ============ ============ ============ Notes Payable.......... $ 38,011,377 $ 38,285,744 $ 38,221,155 $ 38,479,512 $ 33,671,066 $ 33,689,089 $ 33,885,216 Other Liabilities...... 1,430,503 1,788,026 1,810,355 1,721,037 1,549,151 1,587,369 781,237 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Liabilities.. $ 39,441,880 $ 40,073,770 $ 40,031,510 $ 40,200,549 $ 35,220,217 $ 35,276,458 $ 34,666,453 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Partners Capital (Deficit)............ $ (4,600,105) $ (3,808,728) $ (4,236,329) $ (2,525,924) $ (710,392) $ 370,814 $ 3,174,347 ============ ============ ============ ============ ============ ============ ============
PARK TOWNE PLACE ASSOC. LP ------------------------------------------------------------------------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- ------------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Rental Revenue......... $ 8,158,069 $ 7,842,288 $ 10,456,384 $ 9,958,898 $ 9,885,828 $ 9,655,896 $ 9,908,226 Other Income........... 349,659 302,080 402,773 296,545 378,029 315,621 394,663 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Revenue...... $ 8,507,728 $ 8,144,368 $ 10,859,157 $ 10,255,443 $ 10,263,857 $ 9,971,517 $ 10,302,889 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Operating Expenses..... $ 3,209,170 $ 3,725,321 $ 4,967,094 $ 4,409,260 $ 4,056,726 $ 4,810,719 $ 4,373,673 General & Administrative....... 226,678 201,725 268,967 251,048 275,629 348,874 379,574 Depreciation........... 1,938,446 1,938,446 2,584,595 2,451,788 2,443,474 2,417,434 2,406,024 Interest Expense....... 2,681,947 2,625,471 3,500,628 3,710,129 3,313,671 3,927,253 4,161,209 Property Taxes......... 815,263 936,209 1,248,278 1,248,750 1,255,565 1,270,768 1,285,376 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Expenses..... $ 8,871,504 $ 9,427,172 $ 12,569,562 $ 12,070,975 $ 11,345,065 $ 12,775,048 $ 12,605,856 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net Income (Loss) before extraordinary items................ $ (363,776) $ (1,282,804) $ (1,710,405) $ (1,815,532) $ (1,081,208) $ (2,803,531) $ (2,302,967) Extraordinary Items.... -- -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net Income (Loss)...... $ (363,776) $ (1,282,804) $ (1,710,405) $ (1,815,532) $ (1,081,208) $ (2,803,531) $ (2,302,967) ============ ============ ============ ============ ============ ============ ============ Net Income (Loss) per limited partnership unit................. $ (909.44) $ (3,207.01) $ (4,272.00) $ (4,539.00) $ (2,703.02) $ (7,008.83) $ (5,757.42) ============ ============ ============ ============ ============ ============ ============ Distributions per limited partnership unit................. $ -- $ -- $ -- $ -- $ -- $ -- $ -- ============ ============ ============ ============ ============ ============ ============
S-50 2936 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership incurred a net loss of $363,776 for the nine months ended September 30, 1998, compared to $1,282,804 for the nine months ended September 30, 1997. The decrease in net loss of $919,028 was primarily the result of an increase in rental revenues, coupled with a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $8,507,728 for the nine months ended September 30, 1998, compared to $8,144,368 for the nine months ended September 30, 1997, an increase of $363,360, or 4.5%. This increase is primarily due to higher rental rates. In addition, late fees, cleaning and damage fees, and lease cancellation fees increased substantially in comparison to the prior period. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $3,209,170 for the nine months ended September 30, 1998, compared to $3,725,321 for the nine months ended September 30, 1997, a decrease of $516,151, or 13.9%. This decrease is primarily due to lower advertising expenses and a marked decrease in repairs and maintenance costs. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $24,953 to $226,678 for the nine months ended September 30, 1998, compared to $201,725 for the corresponding period of 1997. This increase is due to higher asset management costs. DEPRECIATION EXPENSE Depreciation expense remained constant for both periods. INTEREST EXPENSE Interest expense totaled $2,606,083 for the nine months ended September 30, 1998, compared to $2,625,471 for the nine months ended September 30, 1997, a decrease of $19,388, or 0.7%. This decrease is due to a lower outstanding mortgage balance resulting from principal payments made during the period. S-51 2937 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership incurred a net loss of $1,710,405 for the year ended December 31, 1997, compared to a net loss of $1,815,532 for the year ended December 31, 1996. The decrease in net loss of $105,127 was primarily the result of an increase in rental income. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $10,859,157 for the year ended December 31, 1997, compared to $10,255,443 for the year ended December 31, 1996, an increase of $603,714, or 5.9%. This increase is largely due to an increase in rental rates of 5.7%, coupled with a slight increase in occupancy. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $4,967,094 for the year ended December 31, 1997, compared to $4,409,260 for the year ended December 31, 1996, an increase of $557,834 or 12.6%. This increase is primarily a result of higher management fees, coupled with a general increase in all repair costs such as painting and flooring. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $268,967, an increase of $17,919 for the year ended December 31, 1997, compared to the prior year. This increase is due to higher asset management costs. DEPRECIATION EXPENSE Depreciation expense increased $132,807 to $2,584,595 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $3,500,628 for the year ended December 31, 1997, compared to $3,710,129 for the year ended December 31, 1996, a decrease of $209,501, or 5.6 %. The decrease is a result of the lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $1,815,532 for the year ended December 31, 1996, compared to net loss of $1,081,208 for the year ended December 31, 1995. The increase in net loss of $734,324 was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $10,255,443 for the year ended December 31, 1996, compared to $10,263,857 for the year ended December 31, 1995, a decrease of $8,414. This decrease is primarily due to an increase in concessions to tenants, which was partially offset by a decrease in vacancy. S-52 2938 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $4,409,260 for the year ended December 31, 1996, compared to $4,056,726 for the year ended December 31, 1995, an increase of $352,534 or 8.7%. This increase is primarily due to higher maintenance costs for the painting project undertaken in 1996. In addition, workman's compensation insurance increased approximately $10,000 from the prior year. DEPRECIATION EXPENSE Depreciation expense increased $8,314 to $2,451,788 as of December 31, 1996 due primarily to capitalized additions to the investment property during the year. INTEREST EXPENSE Interest expense totaled $3,710,129 for the year ended December 31, 1996, compared to $3,313,671 for the year ended December 31, 1995, an increase of $396,458. The increase is due to the partnership refinancing its mortgage on October 2,1996, in which the outstanding indebtedness was increased by approximately $5 million. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $770,350 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $38,011,377. The mortgage requires monthly installments of principal and interest of approximately $313,249 through maturity on November 1, 2006, when all outstanding principal and interest are due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 9.125%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 2939 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 380 units of your partnership (up to 93.86 units) for consideration per unit of (i) 328.50 Preferred OP Units, (ii) 212.25 Common OP Units, or (iii) $8,208 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 2940 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 2941 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 2942 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 2943 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 2944 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 2945 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 2946 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 2947 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 2948 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 2949 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 2950 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 2951 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 2952 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 2953 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 2954 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 2955 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 2956 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is Partnership Agreement") or as provided by December 31, 2035. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating maintain, operate, lease, sell and dispose Partnership is to conduct any business that of your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your partnership's partnership organized pursuant to the agreement of limited partnership, your Delaware Revised Uniform Limited Part- partnership may perform all acts necessary, nership Act (as amended from time to time, advisable or convenient to the business of or any successor to such statute) (the your partnership including borrowing money "Delaware Limited Partnership Act"), and creating liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 2957 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 382 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP In addition, the general partner may sell Unitholder. See "Description of OP additional limited partnership interests on Units -- Management by the AIMCO GP" in the such terms and conditions and the additional accompanying Prospectus. Subject to Delaware limited partners will have such rights and law, any additional partnership interests obligations as the general partner may be issued in one or more classes, or one determines; provided that such additional or more series of any of such classes, with limited partnership interests may not such designations, preferences and relative, decrease pro rata the interests of the participating, optional or other special original limited partners by more than 25% rights, powers and duties as shall be and such limited partners may purchase the determined by the general partner, in its additional limited partnership interests pro sole and absolute discretion without the rata in accordance with the percentage of approval of any OP Unitholder, and set forth interests they own for a period of 45 days in a written document thereafter attached to after notice of such sale is given to the and made an exhibit to the AIMCO Operating original limited partners. Partnership Agreement.
Restrictions Upon Related Party Transactions The partnership agreement specifies certain The AIMCO Operating Partnership may lend or contracts that are to be entered into with contribute funds or other assets to its the general partner and its affiliates. In subsidiaries or other persons in which it addition, partners and has an equity investment,
S-72 2958 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP their affiliates are authorized to lend and such persons may borrow funds from the money to your partnership which will be AIMCO Operating Partnership, on terms and evidence by a promissory note which bears conditions established in the sole and interest at a commercially reasonable rate absolute discretion of the general partner. not in excess of 3% above the prime interest To the extent consistent with the business rate charged by the Third First National purpose of the AIMCO Operating Partnership Bank of Boston and provide that the and the permitted activities of the general obligation of your partnership to make partner, the AIMCO Operating Partnership may interest and principal payments thereunder transfer assets to joint ventures, limited will be subordinate to the obligation of liability companies, partnerships, your partnership to pay unrelated creditors corporations, business trusts or other of your partnership but will have priority business entities in which it is or thereby over distributions to the partners. becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations on behalf of your the general partner has full power and partnership and to give as security therefor authority to borrow money on behalf of the any partnership's property. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner to written demand with a statement of the inspect the register containing the names purpose of such demand and at such OP and the number of units owned at all Unitholder's own expense, to obtain a reasonable times during normal business current list of the name and last known hours at the principal office of your business, residence or mailing address of partnership. the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and the exclusive right to manage and control affairs of the AIMCO Operating Partnership the partnership's business, to bind your are vested in AIMCO-GP, Inc., which is the partnership by its sole signature and take general partner. No OP Unitholder has any any action it deems necessary or advisable right to participate in or exercise control in connection with the business of your or management power over the business and partnership. No limited partner has any affairs of the AIMCO Operating Partner- authority or right to act for or bind your ship. The OP Unitholders have the right to partnership or to participate in or have any vote on certain matters described under control over your partnership's business, "Comparison of Your Units and AIMCO OP except as required by applicable statutes. Units -- Voting
S-73 2959 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates will not Agreement, the general partner is not liable incur any liability, responsibility or to the AIMCO Operating Partnership for accountability for damages or otherwise to losses sustained, liabilities incurred or your partnership or any limited partner benefits not derived as a result of errors arising out of any acts performed or any in judgment or mistakes of fact or law of omission by any of them if they believed in any act or omission if the general partner good faith that such act or omission was in acted in good faith. The AIMCO Operating the best interests of your partnership and Partnership Agreement provides for such course of conduct did not constitute indemnification of AIMCO, or any director or negligence or misconduct on the part of the officer of AIMCO (in its capacity as the general partner. In addition, your previous general partner of the AIMCO partnership will, to the extent permitted by Operating Partnership), the general partner, law, indemnify and save harmless the general any officer or director of general partner partner and its affiliates against and from or the AIMCO Operating Partnership and such any loss, liability, cost or expenses other persons as the general partner may (including reasonable attorneys' fees) or designate from and against all losses, damage sustained by them in connection with claims, damages, liabilities, joint or your partnership provided that such loss, several, expenses (including legal fees), liability, cost or expense or damage was not fines, settlements and other amounts the result of negligence or misconduct on incurred in connection with any actions the part of the general partners or such relating to the operations of the AIMCO persons. The general partner, its affiliates Operating Partnership, as set forth in the and any placing broker will not be AIMCO Operating
S-74 2960 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP indemnified for liabilities arising under Partnership Agreement. The Delaware Limited Federal and state securities laws unless (1) Partnership Act provides that subject to the there has been a successful adjudication on standards and restrictions, if any, set the merits of each count involving forth in its partnership agreement, a securities law violations, (2) such claims limited partnership may, and shall have the have been dismissed with prejudice on the power to, indemnify and hold harmless any merits by a court of competent jurisdiction partner or other person from and against any or (3) a court of competent jurisdiction and all claims and demands whatsoever. It is approves settlement of the claims. In such the position of the Securities and Exchange claim for indemnification for Federal or Commission and certain state securities state securities law violation, the party administrations that indemnification of seeking indemnification must place before directors and officers for liabilities the court the position of the SEC and any arising under the Securities Act is against other applicable regulatory agency with public policy and is unenforceable pursuant respect to the issue of indemnification for to Section 14 of the Securities Act of 1933 securities law violations. Such indemnity and their respective state securities laws. will be paid from, and only to the extent of, partnership assets.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner upon the vote the business and affairs of the AIMCO of the limited partners holding 51% of the Operating Partnership. The general partner then outstanding units. A general partner may not be removed as general partner of the may withdraw voluntarily from your AIMCO Operating Partnership by the OP partnership only if another general partner Unitholders with or without cause. Under the remains. The general partner has the right AIMCO Operating Partnership Agreement, the to admit any person as an additional or general partner may, in its sole discretion, substitute general partner with the consent prevent a transferee of an OP Unit from of the limited partners owning more than 50% becoming a substituted limited partner of the then outstanding units. A limited pursuant to the AIMCO Operating Partnership partner may not transfer his interests Agreement. The general partner may exercise without the consent of the general partner. this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended upon approval by set forth in the AIMCO Operating Partnership the limited partners owning more than 50% of Agreement, whereby the general partner may, the units and the general partner. without the consent of the OP Unitholders, Amendments to certain sections specified in amend the AIMCO Operating Partnership your partnership's agreement of limited Agreement, amendments to the AIMCO Operating partnership require the unanimous consent of Partnership Agreement require the consent of all of the limited partners. In addition, the holders of a majority of the outstanding the general partner may amend your Common OP Units, excluding AIMCO and certain partnership's agreement of limited other limited exclusions (a "Majority in partnership to comply with the tax laws. Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the
S-75 2961 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $60,000 in 1986, increasing its capacity as general partner of the AIMCO annually at a rate of 6% and 20% of Cash Operating Partnership. In addition, the Flow for any year in which Cash Flow exceeds AIMCO Operating Partnership is responsible the forecasted amount for such year and fees for all expenses incurred relating to the which may be paid for additional services. AIMCO Operating Partnership's ownership of Moreover, the general partner or certain its assets and the operation of the AIMCO affiliates may be entitled to compensation Operating Partnership and reimburses the for additional services rendered. general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has liable for any debts, liabilities, contract, personal liability for the AIMCO Operating or obligation of your partnership. A limited Partnership's debts and obligations, and partner is liable only to make payment of liability of the OP Unitholders for the his capital contribution when due under your AIMCO Operating Partnership's debts and partnership's agreement of limited obligations is generally limited to the partnership. After its capital contribution amount of their investment in the AIMCO has been fully paid, no limited partner is Operating Partnership. However, the required to make any further capital con- limitations on the liability of limited tributions or lend any funds to your partners for the obligations of a limited partnership, except as provided under partnership have not been clearly applicable law. established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-76 2962 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must diligently and faithfully devote as generally requires a general partner of a much of its time, but is not required to Delaware limited partnership to adhere to devote its full time, to the business of fiduciary duty standards under which it owes your partnership as necessary to conduct the its limited partners the highest duties of business of your partnership. The general good faith, fairness and loyalty and which partner must at all times act in a fiduciary generally prohibit such general partner from manner toward your partnership and the taking any action or engaging in any limited partners. The general partner and transaction as to which it has a conflict of its affiliates may engage in or possess an interest. The AIMCO Operating Partnership interest in other business ventures of every Agreement expressly authorizes the general nature and description, including, without partner to enter into, on behalf of the limitation, real estate business ventures, AIMCO Operating Partnership, a right of whether or not such other enterprises are in first opportunity arrangement and other competition with any activities of your conflict avoidance agreements with various partnership. affiliates of the AIMCO Operating Partnership and the general partner, on such In general, your partnership's agreement of terms as the general partner, in its sole limited partnership and the AIMCO Operating and absolute discretion, believes are Partnership Agreement have limitations on advisable. The AIMCO Operating Partnership the liability of the general partner but Agreement expressly limits the liability of such limitations differ in terms and provide the general partner by providing that the more protection for the general partner of general partner, and its officers and the AIMCO Operating Partnership. directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to
S-77 2963 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-78 2964 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a 66 2/3% of the the Preferred OP Units will certain limited matters such outstanding units and the have the same voting rights as certain amendments and consent of the general as holders of the Common OP termination of the AIMCO partner, your partnership Units. See "Description of Operating Partnership may engage in any business OP Units" in the accompany- Agreement and certain other than as set forth in ing Prospectus. So long as transactions such as the your partnership's agreement any Preferred OP Units are institution of bankruptcy of limited partnership, outstanding, in addition to proceedings, an assignment liquidate or dissolve in any other vote or consent of for the benefit of creditors whole or in part, provided partners required by law or and certain transfers by the that your partnership may by the AIMCO Operating general partner of its not dissolve as long as it Partnership Agreement, the interest in the AIMCO owes obligations to GMAC affirmative vote or consent Operating Partnership or the Commercial Mortgage of holders of at least 50% admission of a successor Corporation, consolidate, of the outstanding Preferred general partner. merge or enter into any form OP Units will be necessary of consolidation with or for effecting any amendment Under the AIMCO Operating into any other entity or of any of the provisions of Partnership Agreement, the institute bankruptcy the Partnership Unit general partner has the proceedings. The consent of Designation of the Preferred power to effect the the limited partners holding OP Units that materially and acquisition, sale, transfer, more than 50% of the units adversely affects the rights exchange or other then outstanding is or preferences of the disposition of any assets of necessary to amend your holders of the Preferred OP the AIMCO Operating partnership's agreement of Units. The creation or Partnership (including, but limited partnership with the issuance of any class or not limited to, the exercise approval of the general series of partnership units, or grant of any conversion, partner, subject to certain including, without option, privilege or exceptions; remove or elect limitation, any partner- subscription right or any a general partner and ship units that may have other right available in approve or disapprove the rights senior or superior to connection with any assets sale of all or a material the Preferred OP Units, at any time held by the portion of your shall not be deemed to AIMCO Operating Partnership) partnership's property. Such materially adversely affect or the merger, vote is also necessary to the rights or preferences of consolidation, approve transactions other the holders of Preferred OP reorganization or other than the decrease, increase Units. With respect to the combination of the AIMCO or refinancing of any exercise of the above Operating Partnership with mortgage which may result in described voting rights, or into another entity, all proceeds which do not each Preferred OP Units without the consent of the constitute Cash Flow. shall have one (1) vote per OP Unitholders. Preferred OP Unit. A general partner may cause The general partner may the dissolution of your cause the dissolution of the partnership by retiring. AIMCO Operating Partnership Your partnership may then be by an "event of withdrawal," continued by the remaining as defined in the Delaware general partner in its sole Limited Partnership Act discretion or if no general (including, without limi- partner remains or the tation, bankruptcy), unless, remaining general partner within 90 days after the does not elect to continue withdrawal, holders of a your partnership, the "majority in limited partners may elect to continue
S-79 2965 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership's business interest," as defined in the by selecting a substitute Delaware Limited Partnership general partner by unanimous Act, agree in writing, in consent within ninety days their sole and absolute after the retirement. discretion, to continue the business of the AIMCO In general, you have greater Operating Partnership and to voting rights in your the appointment of a partnership than you will successor general partner. have as an OP Unitholder. OP The general partner may Unitholders cannot remove elect to dissolve the AIMCO the general partner of the Operating Partnership in its AIMCO Operating Partnership. sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Cash Flow are at the rate of $0.50 per or such portion as the to be made at reasonable Preferred OP Unit; provided, general partner may in its intervals during the fiscal however, that at any time sole and absolute discretion year as determined by the and from time to time on or determine, of Available Cash general partners, and in any after the fifth anniversary (as defined in the AIMCO event will be made within of the issue date of the Operating Partnership sixty days after the close Preferred OP Units, the Agreement) generated by the of each fiscal year. The AIMCO Operating Partnership AIMCO Operating Partnership distributions payable to the may adjust the annual during such quarter to the partners are not fixed in distribution rate on the general partner, the special amount and depend upon the Preferred OP Units to the limited partner and the operating results and net lower of (i) 2.00% plus the holders of Common OP Units sales or refinancing annual interest rate then on the record date es- proceeds available from the applicable to U.S. Treasury tablished by the general disposition of your part- notes with a maturity of partner with respect to such nership's assets. five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special lim- original issue. Holders of Preferred
S-80 2966 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units will not be ited partner and holders of entitled to receive any Common OP Units with respect distributions in excess of to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person who is not a minor, and the Preferred OP Units Operating Partnership except in limited cir- are not listed on any Agreement restricts the cumstances, or an securities exchange. The transferability of the OP incompetent and such person Preferred OP Units are Units. Until the expiration will become a subject of
S-81 2967 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS substitute limited partner to restrictions on transfer one year from the date on if: (1) such transfer as set forth in the AIMCO which an OP Unitholder complies with applicable Operating Partnership acquired OP Units, subject securities laws, (2) a Agreement. to certain exceptions, such written assignment has been OP Unitholder may not duly executed and Pursuant to the AIMCO transfer all or any por- acknowledged by the assignor Operating Partnership tion of its OP Units to any and assignee, (3) the Agreement, until the transferee without the approval of the general expiration of one year from consent of the general partner which may be the date on which a holder partner, which consent may withheld in the sole and of Preferred OP Units be withheld in its sole and absolute discretion of the acquired Preferred OP Units, absolute discretion. After general partner has been subject to certain the expiration of one year, granted, (4) the transfer, exceptions, such holder of such OP Unitholder has the when added to all other Preferred OP Units may not right to transfer all or any assignments within the transfer all or any portion portion of its OP Units to preceding twelve months of its Preferred OP Units to any person, subject to the ending on the date of the any transferee without the satisfaction of certain con- proposed assignment would consent of the general ditions specified in the not result in the partner, which consent may AIMCO Operating Partnership termination of your be withheld in its sole and Agreement, including the partnership under the tax absolute discretion. After general partner's right of code and (5) the assignor the expiration of one year, first refusal. See and assignee have complied such holders of Preferred OP "Description of OP Units -- with such other conditions Units has the right to Transfers and Withdrawals" as set forth in your transfer all or any portion in the accompanying partnership's agreement of of its Preferred OP Units to Prospectus. limited partnership. any person, subject to the satisfaction of certain After the first anniversary There are no redemption conditions specified in the of becoming a holder of rights associated with your AIMCO Operating Partner- Common OP Units, an OP units. ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP Units -- equal to the Liquidation Redemption Rights" in the Preference of the Preferred accompanying Prospectus. OP Units tendered for Upon receipt of a notice of redemption, (ii) a number of redemption, the AIMCO shares of Class A Common Operating Partnership may, Stock of AIMCO that is equal in its sole and absolute in Value to the Liquidation discretion but subject to Preference of the Preferred the restrictions on the OP Units tendered for ownership of Class A Com- redemption, or (iii) for mon Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on Stock, based on an exchange ratio of one share of
S-82 2968 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the Preferred OP Units Class A Common Stock for tendered for redemption; each Common OP Unit, subject provided that such shares to adjustment as provided in are part of a class or the AIMCO Operating series of preferred stock Partnership Agreement. that is then listed on the NYSE or another national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 2969 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 2970 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 2971 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 2972 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 2973 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 2974 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 2975 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 2976 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-91 2977 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 2978 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $95,634 in 1996, $86,251 in 1997 and $57,624 in 1998. The property manager received management fees of $203,451 in 1996, $196,956 in 1997 and $347,448 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 2979 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $770,403 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 2980 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Park Towne Place Associates Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-95 2981 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 (unaudited)............................ F-3 Condensed Statement of Cash Flows for the nine months ended September 30, 1998 (unaudited)............................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Partners' Capital for the years ended December 31, 1997 and 1996......................................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-18 Balance Sheets as of December 31, 1996 and 1995............. F-19 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-20 Statements of Partners' Capital for the years ended December 31, 1996 and 1995......................................... F-21 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-22 Notes to Financial Statements............................... F-23
F-1 2982 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 770,350 Restricted escrows.......................................... 1,863,827 Other assets................................................ 1,712,125 Investment property: Land...................................................... $ 2,000,000 Building and related personal property.................... 58,806,024 ------------ 60,806,024 ------------ Less: Accumulated depreciation............................ (30,310,551) 30,495,473 ------------ ----------- Total assets...................................... $34,841,775 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... 1,430,503 Notes payable............................................... 38,011,377 Partners' deficit................................. (4,600,105) ----------- Total Liabilities and Partners' Deficit........... $34,841,775 ===========
F-2 2983 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1998 1997 ---------- ------------ Revenues: Rental income............................................. $8,158,069 $ 7,842,288 Other income.............................................. 349,659 302,080 ---------- ------------ Total Revenues.................................... 8,507,728 8,144,368 Expenses: Operating expenses........................................ 3,209,170 3,725,321.0 General and administrative expenses....................... 226,678 201,725.0 Depreciation expense...................................... 1,938,446 1,938,446.0 Interest expense.......................................... 2,681,947 2,625,471.0 Property tax expense...................................... 815,263 936,209.0 ---------- ------------ Total Expenses.................................... 8,871,504 9,427,172 Net Loss.......................................... $ (363,776) $ (1,282,804) ========== ============
F-3 2984 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ---------- ----------- Operating Activities: Net loss.................................................. $ (363,776) $(1,282,804) Adjustments to reconcile net loss to net cash provided by operating activities................................... Depreciation and amortization............................. 2,014,310 2,014,310 Changes in accounts: Receivables and deposits and other assets.............. (365,077) (154,681) Accounts payable and accrued expenses.................. (379,852) 66,989 ---------- ----------- Net cash provided by operating activities......... 905,605 643,814 ---------- ----------- Investing Activities: Property improvements and replacements.................... (907,125) (794,805) Net decrease in restricted escrows........................ 231,089 -- ---------- ----------- Net cash used in investing activities..................... (676,036) (794,805) ---------- ----------- Financing Activities: Payments on mortgage...................................... (209,778) (193,768) ---------- ----------- Net cash used in financing activities..................... (209,778) (193,768) ---------- ----------- Net increase (decrease) in cash and cash equivalents...... 19,791 (344,759) Cash and cash equivalents at beginning of year............ 750,559 1,210,238 ---------- ----------- Cash and cash equivalents at end of period................ $ 770,350 $ 865,479 ========== ===========
F-4 2985 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Park Towne Place Associates Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2986 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 2987 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Capital........................... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 2988 INDEPENDENT AUDITORS' REPORT To the Partners of Park Towne Place Associates Limited Partnership We have audited the accompanying balance sheets of Park Towne Place Associates Limited Partnership as of December 31, 1997 and 1996, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Park Towne Place Associates Limited Partnership as of December 31, 1997 and 1996, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 18, 1998 F-8 2989 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in real estate Land...................................................... $ 2,000,000 $ 2,000,000 Building and building improvements........................ 54,262,367 52,102,912 Personal property 3,636,532 4,736,247 ----------- ----------- 59,898,899 58,839,159 Less: accumulated depreciation............................ 28,372,105 25,787,510 ----------- ----------- 31,526,794 33,051,649 Cash and cash equivalents................................... 750,559 1,210,238 Tenant security deposits -- funded.......................... 348,445 236,020 Mortgage escrow deposits.................................... 1,240,346 898,273 Replacement reserves........................................ 854,570 1,047,124 Prepaid expenses and other assets........................... 189,383 245,084 Deferred costs, net of accumulated amortization of $126,441 in 1997 and $25,288 in 1996............................... 885,084 986,237 ----------- ----------- Total assets......................................... $35,795,181 $37,674,625 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real property Mortgage payable.......................................... $38,221,155 $38,479,512 Other liabilities Accounts payable and accrued expenses..................... 856,255 836,951 Loans payable -- affiliates............................... 356,872 356,872 Accrued interest -- mortgage.............................. 292,605 292,605 Tenants security deposits................................. 304,623 234,609 ----------- ----------- Total liabilities.................................... 40,031,510 40,200,549 Partners' capital........................................... (4,236,329) (2,525,924) ----------- ----------- Total liabilities and partners' capital.............. $35,795,181 $37,674,625 =========== ===========
See notes to financial statements F-9 2990 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1997 1996 ----------- ----------- Income Rental.................................................... $10,456,384 $ 9,958,898 Interest income........................................... 47,002 31,324 Other income.............................................. 355,771 265,221 ----------- ----------- Total income......................................... 10,859,157 10,255,443 ----------- ----------- Expenses Leasing................................................... 412,843 338,424 General and administrative................................ 268,967 251,048 Management fees........................................... 339,661 305,176 Utilities................................................. 1,384,814 1,334,489 Repairs and maintenance................................... 1,774,431 1,613,779 Ground rent............................................... -- 198,750 Insurance................................................. 285,292 314,858 Taxes..................................................... 1,248,278 1,248,750 ----------- ----------- Total operating expenses............................. 5,714,286 5,605,274 Other expenses Depreciation.............................................. 2,584,595 2,451,788 Amortization.............................................. 101,153 25,288 Interest expense.......................................... 3,500,628 3,710,129 Other expenses............................................ 668,900 278,496 ----------- ----------- Total other expenses................................. 12,569,562 12,070,975 ----------- ----------- Net loss.................................................... $(1,710,405) $(1,815,532) =========== =========== Net loss allocated to Winthrop Financial Associates......... $ (68,416) $ (86,237) =========== =========== Net loss allocated to Investor Limited Partners............. $(1,624,885) $(1,724,756) =========== =========== Net loss allocated to PTP Properties, Inc................... $ (17,104) $ (4,539) =========== =========== Net loss per unit outstanding -- Investor L.P............... $ (4,272) $ (4,539) =========== ===========
See notes to financial statements F-10 2991 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
WINTHROP INVESTOR PTP FINANCIAL LIMITED PROPERTIES, ASSOCIATES PARTNERS INC. TOTAL ----------- ----------- ----------- ----------- Balance, December 31, 1995............. $(2,363,966) $ 1,653,574 $ -- $ (710,392) Transfer of interest................... 486,409 -- (486,409) -- Net loss............................. (86,237) (1,724,756) (4,539) (1,815,532) ----------- ----------- --------- ----------- Balance, December 31, 1996............. (1,963,794) (71,182) (490,948) (2,525,924) Net loss............................. (68,416) (1,624,885) (17,104) (1,710,405) ----------- ----------- --------- ----------- Balance, December 31, 1997............. $(2,032,210) $(1,696,067) $(508,052) $(4,236,329) =========== =========== ========= ===========
See notes to financial statements F-11 2992 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31,
1997 1996 ----------- ------------ Cash flows from operating activities Net loss.................................................. $(1,710,405) $ (1,815,532) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization.......................... 2,685,748 2,477,076 (Increase) decrease in tenant security deposits -- funded................................... (112,425) 8,501 (Increase) decrease in mortgage escrow deposits........ (342,073) 36,264 Increase in deferred costs............................. -- (1,011,525) Increase in accrued interest -- mortgage............... -- 15,372 Decrease in prepaid expenses and other assets.......... 55,701 94,138 Increase (decrease) in accounts payable and accrued expenses............................................. 19,304 (44,626) Increase in tenant security deposits................... 70,014 39,035 ----------- ------------ Net cash provided by (used in) operating activities........................................ 665,864 (201,297) ----------- ------------ Cash flows from investing activities Investment in land........................................ -- (2,000,000) Investment in rental property............................. (1,059,740) (1,018,933) Decrease (increase) in reserve for replacements........... 192,554 (1,047,124) ----------- ------------ Net cash used in investing activities................ (867,186) (4,066,057) ----------- ------------ Cash flows from financing activities Principal payments on mortgage............................ (258,357) (33,414,321) Proceeds from mortgage.................................... -- 38,500,000 Increase in loans payable -- affiliates................... -- 356,872 Payments on loans payable -- affiliates................... -- (472,000) ----------- ------------ Net cash (used in) provided by financing activities........................................ (258,357) 4,970,551 ----------- ------------ Net (Decrease) Increase in Cash and Cash Equivalents....................................... (459,679) 703,197 Cash and cash equivalents, beginning........................ 1,210,238 507,041 ----------- ------------ Cash and cash equivalents, end.............................. $ 750,559 $ 1,210,238 =========== ============ Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 3,500,628 $ 3,694,757 =========== ============
See notes to financial statements F-12 2993 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Towne Place Associates Limited Partnership, a Delaware limited partnership, was formed in November 1985 to acquire, renovate and operate a four-building apartment complex known as Park Towne Place (the "Property"). The Property consists of 969 apartment units and recreational and retail facilities situated on approximately 8.95 acres of land. The Partnership will terminate on December 31, 2035, or earlier upon the occurrence of certain events specified in the partnership agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Partnership was Three Winthrop Properties, Inc. Upon admission of the Investors to the Partnership, profits, losses and cash flow from normal operations were allocated 5% to WFA and 95% to the investor limited partners. The partnership sold 380 limited partnership units. Effective September 30, 1996, WFA withdrew from the Partnership as the general partner and assigned 1% of 5% interest to the new general partner, PTP Properties, Inc. WFA retained its remaining 4% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 4% to WFA and 95% to the investor limited partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Mortgage costs are amortized over the term of the mortgage loan using the straight-line method. Rental Income Rental income is recognized as rents become due. Rents received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Income Taxes No provision has been made for federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. F-13 2994 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. NOTE B -- MORTGAGE PAYABLE On October 2, 1996, the Partnership refinanced its mortgage through GMAC Commercial Mortgage Corporation. The new mortgage, which had an original balance of $38,500,000, is secured by a deed of trust on the rental property and an assignment of property leases and rents, and is guaranteed by an affiliate of the general partner. The note bears interest at 9.125% per annum. Principal and interest are payable by the partnership in monthly installments of $313,249 through maturity on November 1, 2006, when all outstanding principal and accrued interest are due. Included in interest expense on the statements of operations for the year ended December 31, 1996 is $347,957 of a prepayment penalty paid to the old lender on refinancing its mortgage. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets. The liability of the partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998............................................ $285,095 1999............................................ 312,226 2000............................................ 341,939 2001............................................ 374,479 2002............................................ 410,117
NOTE C -- INVESTMENT IN LAND The land on which the property was located was previously owned by 2200 Benjamin Franklin Parkway Associates Limited Partnership (the "fee owner"), and served as landlord under the ground lease. The general partner of the fee owner is Nine St. James Leasing Co., whose shareholders are affiliates of the general partner and WFA. On September 30, 1996, the partnership executed an option in their ground lease to purchase the land for $2,000,000 from the fee owner. The partnership financed a portion of the purchase through the refinancing as described in note B. The remaining balance due to the fee owner at December 31, 1997 and 1996 is $356,872. This amount is noninterest bearing and payable upon sale or refinancing of the property. NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1997 and 1996 differs from the net loss for financial reporting purposes primarily due to differences in the recognition of depreciation incurred by the Partnership and the recognition F-14 2995 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of interest expense on the mortgage loan under the economic accrual method for tax purposes. The taxable losses for 1997 and 1996 are as follows:
1997 1996 ----------- ----------- Net loss for financial reporting purposes................. $(1,708,604) $(1,815,532) Accelerated depreciation on real and personal property.... (5,810) 14,787 Interest expense under the economic accrual method........ -- 485,838 Other..................................................... -- 20 ----------- ----------- Taxable loss.............................................. $(1,714,414) $(1,314,887) =========== ===========
NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with the general partner and WFA. Related party transactions with the general partner, WFA and its affiliates include the following: The Partnership incurred ground rent expense of $198,750 in 1996. The Partnership was managed by Winthrop Management (through October 27, 1997), an affiliate of the general partner and WFA, which received an annual property management fee equal to 2% of gross operating revenues for the properties. Fees of $196,956 and $203,451 were charged to operations for 1997 and 1996, respectively. On October 28, 1997, the partnership terminated Winthrop Management as the managing agent and appointed Insignia Residential Group, LP ("Insignia") as the new management agent. (See note G to the financial statements.) The current management agreement provides for a property management fee equal to 3% of the gross operating revenues generated by the properties. Fees of $54,931 were charged to operations for the year ended December 31, 1997. Management fees include $87,774 and $101,725 in 1997 and 1996, respectively, representing consulting management fees equal to 1% of gross collections, paid to an affiliate through October 27, 1997. An investor service fee of $77,359 and $95,634 in 1997 and 1996, respectively, was paid to an affiliate and is included in other expenses. In May of 1994 an affiliate of the general partner and WFA agreed to advance the Partnership $300,000 in a noninterest bearing revolving line of credit. During 1995, the affiliate advanced an additional $240,000, and the Partnership repaid $68,000 of the advances. During 1996, the outstanding balance of $472,000 was repaid with refinancing proceeds as more fully described in note B. Included in other expenses is $18,982 of asset management fees and $8,892 of general partner reimbursement charged to operations in 1997. The amounts are payable to an affiliate of the general partner starting in November 1997. At December 31, 1997, $27,874 remains payable. NOTE F -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1997, the uninsured portion of the cash balance held in one of the banks was $248,445. NOTE G -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the Class B Stock of First Winthrop Corporation, an affiliate of the general partner. F-15 2996 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-16 2997 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-18 Balance Sheets.............................................. F-19 Statements of Operations.................................... F-20 Statements of Partners' Capital............................. F-21 Statements of Cash Flows.................................... F-22 Notes to Financial Statements............................... F-23
F-17 2998 INDEPENDENT AUDITORS' REPORT To the Partners of Park Towne Place Associates Limited Partnership We have audited the accompanying balance sheets of Park Towne Place Associates Limited Partnership as of December 31, 1996 and 1995, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Park Towne Place Associates Limited Partnership as of December 31, 1996 and 1995, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland January 24, 1997 F-18 2999 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- Investment in Real Estate Land...................................................... $ 2,000,000 $ -- Building and building improvements........................ 52,102,912 52,102,912 Personal property......................................... 4,736,247 3,717,314 ----------- ----------- 58,839,159 55,820,226 Less: accumulated depreciation............................ 25,787,510 23,335,722 ----------- ----------- 33,051,649 32,484,504 Cash and cash equivalents................................... 1,210,238 507,041 Tenant security deposits -- funded.......................... 236,020 244,521 Mortgage escrow deposits.................................... 898,273 934,537 Replacement reserves........................................ 1,047,124 -- Prepaid expenses and other assets........................... 245,084 339,222 Deferred costs, net of accumulated amortization of $25,288 in 1996................................................... 986,237 -- ----------- ----------- Total Assets......................................... $37,674,625 $34,509,825 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real property Mortgage payable.......................................... $38,479,512 $33,393,833 Other liabilities Accounts payable and accrued expenses..................... 836,951 881,577 Loans payable -- affiliates............................... 356,872 472,000 Accrued interest -- mortgage.............................. 292,605 277,233 Tenants security deposits................................. 234,609 195,574 ----------- ----------- Total Liabilities.................................... 40,200,549 35,220,217 Partners' Capital........................................... (2,525,924) (710,392) ----------- ----------- Total Liabilities and Partners' Capital..................... $37,674,625 $34,509,825 =========== ===========
See notes to financial statements F-19 3000 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- Income Rental.................................................... $ 9,958,898 $ 9,885,828 Interest income........................................... 31,324 14,859 Other income.............................................. 265,221 363,170 ----------- ----------- Total Income......................................... 10,255,443 10,263,857 ----------- ----------- Expenses Leasing................................................... 338,424 312,607 General and administrative................................ 251,048 275,629 Management Fees........................................... 305,176 304,306 Utilities................................................. 1,334,489 1,020,416 Repairs and Maintenance................................... 1,613,779 1,589,236 Ground Rent............................................... 198,750 265,000 Insurance................................................. 314,858 299,283 Taxes..................................................... 1,248,750 1,255,565 ----------- ----------- Total Operating Expenses............................. 5,605,274 5,322,042 Other expenses Depreciation.............................................. 2,451,788 2,443,474 Amortization.............................................. 25,288 87,174 Interest expense.......................................... 3,710,129 3,313,671 Other expense............................................. 278,496 178,704 ----------- ----------- Total Other Expenses................................. 12,070,975 11,345,065 ----------- ----------- Net Loss.................................................... $(1,815,532) $(1,081,208) =========== =========== Net loss allocated to Winthrop Financial Associates......... $ (86,237) $ (54,060) =========== =========== Net loss allocated to Investor Limited Partners............. $(1,724,756) $(1,027,148) =========== =========== Net loss allocated to PTP Properties, Inc. ................. $ (4,539) $ -- =========== =========== Net loss per unit outstanding -- Investor L.P. ............. $ (4,539) $ (2,703) =========== ===========
See notes to financial statements F-20 3001 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995
WINTHROP INVESTOR PTP FINANCIAL LIMITED PROPERTIES, ASSOCIATES PARTNERS INC. TOTAL ----------- ----------- ----------- ----------- Balance, December 31, 1994............. $(2,309,906) $ 2,680,722 $ -- $ 370,816 Net loss............................. (54,060) (1,027,148) -- (1,081,208) ----------- ----------- --------- ----------- Balance, December 31, 1995............. (2,363,966) 1,653,574 -- (710,392) Transfer of interest................... 486,409 -- (486,409) -- Net loss............................. (86,237) (1,724,756) (4,539) (1,815,532) ----------- ----------- --------- ----------- Balance, December 31, 1996............. $(1,963,794) $ (71,182) $(490,948) $(2,525,924) =========== =========== ========= ===========
See notes to financial statements F-21 3002 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ----------- Cash flows from operating activities Net loss.................................................. $ (1,815,532) $(1,081,208) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization.......................... 2,477,076 2,530,648 (Increase) decrease in tenant security deposits -- funded................................... 8,501 (110,596) Decrease in mortgage escrow deposits................... 36,264 3,246 Increase in deferred costs............................. (1,011,525) -- Increase in accrued interest -- mortgage............... 15,372 -- Decrease (increase) in prepaid expenses and other assets............................................... 94,138 (179,871) (Decrease) increase in accounts payable and accrued expenses............................................. (44,626) 3,051 Increase in tenant security deposits................... 39,035 63,964 ------------ ----------- Net cash provided by (used in) operating activities........................................ (201,297) 1,229,234 ------------ ----------- Cash flows from investing activities Investment in land........................................ (2,000,000) -- Investment in rental property............................. (1,018,933) (718,561) Increase in reserve for replacements...................... (1,047,124) -- ------------ ----------- Net cash used in investing activities................ (4,066,057) (718,561) ------------ ----------- Cash flows from financing activities Principal payments on mortgage............................ (33,414,321) (295,256) Proceeds from mortgage.................................... 38,500,000 -- Increase in loans payable -- affiliates................... 356,872 172,000 Payments on loans payable -- affiliates................... (472,000) -- ------------ ----------- Net cash provided by (used in) financing activities........................................ 4,970,551 (123,256) ------------ ----------- Net increase in cash and cash equivalents................... 703,197 387,417 Cash and cash equivalents, beginning........................ 507,041 119,624 ------------ ----------- Cash and cash equivalents, end.............................. $ 1,210,238 $ 507,041 ============ =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 3,694,757 $ 3,313,671 ============ ===========
See notes to financial statements F-22 3003 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Towne Place Associates Limited Partnership, a Delaware limited partnership, was formed in November 1985 to acquire, renovate and operate a four-building apartment complex known as Park Towne Place (the "Property"). The Property consists of 969 apartment units and recreational and retail facilities situated on approximately 8.95 acres of land. The Partnership will terminate on December 31, 2035, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Partnership was Three Winthrop Properties, Inc. Upon admission of the Investors to the Partnership, profits, losses and cash flow from normal operations were allocated 5% to WFA and 95% to the Investor Limited Partners. Effective September 30, 1996, WFA withdrew from the Partnership as the general partner and assigned 1% of 5% interest to the new general partner, PTP Properties, Inc. WFA retained its remaining 4% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 4% to WFA and 95% to the investor limited partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Mortgage costs are amortized over the term of the mortgage loan using the straight line method. Rental Income Rental income is recognized as rents become due. Rents received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Income Taxes No provision has been made for Federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. F-23 3004 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. The carrying amount of $1,200,015 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGE PAYABLE On October 2, 1996, the Partnership refinanced its mortgage through GMAC Commercial Mortgage Corporation. The new mortgage, which had an original balance of $38,500,000, is secured by a deed of trust on the rental property and an assignment of property leases and rents, and is guaranteed by an affiliate of the general partner. The note bears interest at 9.125% per annum. Principal and interest are payable by the partnership in monthly installments of $313,249 through maturity on November 1, 2006, when all outstanding principal and accrued interest are due. Included in interest expense on the statements of operations for the year ended December 31, 1996 is $347,957 of a prepayment penalty paid to the old lender on refinancing its mortgage. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets. The liability of the partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1997......................................... $260,321 1998......................................... 285,095 1999......................................... 312,226 2000......................................... 341,939 2001......................................... 374,479
NOTE C -- INVESTMENT IN LAND The land on which the property was located was previously owned by 2200 Benjamin Franklin Parkway Associates Limited Partnership (the "Fee Owner"), and served as landlord under the ground lease. The general partner of the Fee Owner is Nine St. James Leasing Co., whose shareholders are affiliates of the general partner and WFA. On September 30, 1996, the partnership executed an option in their ground lease to purchase the land for $2,000,000 from the fee owner. The partnership financed a portion of the purchase through the refinancing as described in Note B. The remaining balance due to the Fee Owner at December 31, 1996 is $356,872. This amount is noninterest bearing and payable upon sale or refinancing of the property. NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1996 and 1995 differs from the net loss for financial reporting purposes primarily due to differences in the recognition of depreciation incurred by the Partnership and the recognition F-24 3005 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of interest expense on the Mortgage Loan under the economic accrual method for tax purposes. The taxable losses for 1996 and 1995 are as follows:
1996 1995 ----------- ----------- Net loss for financial reporting purposes............. $(1,815,532) $(1,081,208) Accelerated depreciation on real and personal property............................................ 14,787 126,950 Interest expense under the economic accrual method.... 485,838 131,950 Other................................................. 20 (18,000) ----------- ----------- Taxable loss.......................................... $(1,314,887) $ (840,308) =========== ===========
NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with the general partner and WFA. Related party transactions with the general partner, WFA and its affiliates include the following: The Partnership incurred ground rent expense of $198,750 in 1996 and $265,000 in 1995. Management fees includes $101,725 and $101,436 in 1996 and 1995, respectively, representing Consulting Management fees equal to 1% of gross collections, paid to an affiliate. An Investor Service Fee of $95,634 in 1996 and 1995 was paid to an affiliate and is included in other expenses. On March 1, 1989, an affiliate took over the on-site management of the property. Management fees include $203,451 and $202,870 in 1996 and 1995, respectively, representing property management fees, equal to 2% of gross collections, paid to the affiliate. In May of 1994 an affiliate of the general partner and WFA agreed to advance the Partnership $300,000 in a noninterest bearing revolving line of credit. During 1995, the affiliate advanced an additional $240,000, and the Partnership repaid $68,000 of the advances. During 1996, the outstanding balance of $472,000 was repaid with refinancing proceeds as more fully described in note B. NOTE F -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1996, the uninsured portion of the cash balance held in one of the banks was $4,991. F-25 3006 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 3007 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 3008 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 3009 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3010 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3011 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3012 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3013 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3014 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3015 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3016 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3017 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3018 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3019 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3020 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3021 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3022 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3023 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3024 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3025 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3026 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3027 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3028 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3029 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3030 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3031 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3032 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3033
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3034 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3035
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3036 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3037 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3038 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3039
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3040 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3041 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3042 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3043
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3044 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3045 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3046 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3047 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3048 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3049 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3050 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3051 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3052 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3053 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3054 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3055 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3056 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Park Towne Place Associates Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Park Towne Place Associates Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $8,208 in cash, or 212.25 Common OP Units of the Purchaser, or 328.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3057 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3058 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3059 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3060
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3061
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3062
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3063
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3064 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3065 SUBJECT TO COMPLETION, DATED MARCH , 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Quail Run Associates, L.P. in exchange for your choice of: 2,434 of our 8.0% Class Two Partnership Preferred Units; 1,572.75 of our Partnership Common Units; or $60,845 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $60,845 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3066 TABLE OF CONTENTS
PAGE ---- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Quail Run Associates L.P. ........................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ---- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-47 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-50 Overview..................................... S-50 Results of Operations........................ S-50 THE OFFER...................................... S-53 Terms of the Offer; Expiration Date.......... S-53 Acceptance for Payment and Payment for Units...................................... S-53 Procedure for Tendering Units................ S-54 Withdrawal Rights............................ S-57
i 3067
PAGE ---- Extension of Tender Period; Termination; Amendment.................................. S-57 Proration.................................... S-58 Fractional OP Units.......................... S-58 Future Plans of the AIMCO Operating Partnership................................ S-58 Voting by the AIMCO Operating Partnership.... S-59 Dissenters' Rights........................... S-59 Conditions of the Offer...................... S-59 Effects of the Offer......................... S-62 Certain Legal Matters........................ S-62 Fees and Expenses............................ S-64 Accounting Treatment......................... S-64 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-65 Tax Consequences of Exchanging Units Solely for OP Units............................... S-65 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-66 Tax Consequences of Exchanging Units Solely for Cash................................... S-66 Disguised Sale Treatment..................... S-66 Adjusted Tax Basis........................... S-67 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-67 Passive Activity Losses...................... S-67 Tax Reporting................................ S-68 Foreign Offerees............................. S-68 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-68 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-70 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-83 General...................................... S-83 Ranking...................................... S-83
PAGE ---- Distributions................................ S-83 Allocation................................... S-84 Liquidation Preference....................... S-84 Redemption................................... S-85 Voting Rights................................ S-85 Restrictions on Transfer..................... S-86 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-86 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-88 CONFLICTS OF INTEREST.......................... S-92 Conflicts of Interest with Respect to the Offer...................................... S-92 Conflicts of Interest that Currently Exist for Your Partnership....................... S-92 Competition Among Properties................. S-92 Features Discouraging Potential Takeovers.... S-92 Future Exchange Offers....................... S-92 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-93 LEGAL MATTERS.................................. S-94 EXPERTS........................................ S-94 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3068 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,173,000, less approximately $155,200 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 3069 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3070 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2007 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 3071 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 3072 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,345,099 of balloon payments due on its mortgage debt on November 15, 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 3073 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002 and require balloon payments of $3,345,099. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 3074 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,868 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,931.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 3075 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3076 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 753,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 7,173,000 Plus: Cash and cash equivalents............................. 29,912 Plus: Other partnership assets, net of security deposits.... 252,399 Less: Mortgage debt, including accrued interest............. (5,015,781) Less: Accounts payable and accrued expenses................. (2,727) Less: Other liabilities..................................... (52,346) ----------- Partnership valuation before taxes and certain costs........ 2,384,457 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (155,200) Less: Closing costs......................................... (179,325) ----------- Estimates net valuation of your partnership................. 2,049,932 Percentage of estimated net valuation allocated to holders of units.................................................. 94.98% ----------- Estimated net valuation of units............................ 1,947,025 Total number of units............................. 32.0 ----------- Estimated valuation per unit................................ 60,845 =========== Cash consideration per unit................................. 60,845 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $60,845 by the $25 liquidation preference of each Preferred OP Unit to get 2,434 Preferred OP Units per unit. S-9 3077 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $60,845 by a price of $38.69 to get 1,572.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 60,845 Partnership Preferred Units................................. $ 60,845 Partnership Common Units.................................... $ 60,845 Alternatives: Prices on secondary market................................ Not Available Estimated liquidation proceeds............................ $ 60,845 Estimated going concern value............................. $ 52,774 Alternative going concern value(1)........................ $ 60,019 Net book value (deficit).................................. $(74,050)
- --------------- (1) Assumes sale of property when the balloon payment is due instead of refinancing the mortgage. S-10 3078 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Quail Run Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1984 for the purpose of owning and operating a single apartment property located in Zionsville, Indiana, known as "Quail Run Apartments." Your partnership property consists of 166 units and was built in 1972. Your partnership has no employees. As of September 30, 1998, there were 32 units of limited partnership interest issued and outstanding. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $3,300,000 of limited partnership units in 1986. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions totalling per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2007, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,970,760, payable to Marine Midland Bank and Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due November 2002. Your partnership also has a second mortgage note outstanding of $143,487, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, the general partner of your partnership had no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 3079 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 2,434 of our Class Two Partnership Preferred Units; - 1,572.75 of our Partnership Common Units; or - $60,845 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 32 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,434 Preferred OP Units, 1,572.75 Common OP Units, or $60,845 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 3080 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 3081 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $60,845 in cash, 2,434 Preferred OP Units or 1,572.75 Common OP Units. Both your units and the OP Units S-14 3082 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $60,845. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $22,491 for the fiscal year ended December 31, 1998. The property manager received management fees of $72,948 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $486,760 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 3083 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 3084
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 3085 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 3086
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 3087 SUMMARY FINANCIAL INFORMATION OF QUAIL RUN ASSOCIATES, L.P. The summary financial information of Quail Run Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Quail Run Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is derived from audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." QUAIL RUN ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 1,090,969 $ 1,051,548 $ 1,408,880 $ 1,312,973 $ 1,252,296 $ 1,213,937 $ 1,144,883 Net Income/(Loss)............ 158,490 136,154 73,289 78,787 (8,263) (57,114) (276,272) Net Income (Loss) per limited partnership unit........... 4,903.28 4,212.26 2,267.38 2,437.47 (255.64) (1,766.96) (8,547.17) Distributions per limited partnership unit........... -- -- 79.91 -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 90,207 $ 16,355 $ 29,913 $ 76,331 $ 129,592 $ 133,495 $ 43,569 Real Estate, Net of Accumulated Depreciation... 2,289,532 2,358,897 2,273,430 2,230,763 2,204,420 2,108,266 2,242,430 Total Assets................. 2,722,029 2,662,461 2,628,931 2,625,527 2,625,285 2,580,239 2,649,766 Notes Payable................ 4,420,761 4,517,866 4,518,914 4,608,858 4,691,283 4,766,820 4,836,043 General Partners' Capital/(Deficit)............ -- -- -- -- -- -- -- Limited Partners' Capital/(Deficit)............ -- -- -- -- -- -- -- Partners' Capital/(Deficit).... (2,208,642) (2,304,147) (2,369,595) (2,440,301) (2,519,068) (2,510,825) (2,453,711) Total Distributions............ -- -- 2,583 -- -- -- -- Net increase (decrease) in cash and cash equivalents......... 60,294 (59,976) (46,418) (19,169) 199 89,926 (47,203) Net cash provided by operating activities................... 304,400 215,628 302,159 280,459 336,684 257,805 315,373 Ratio of earnings to fixed charges...................... 1.59/1 1.48/1 1.17/1 1.18/1 0.98/1 0.87/1 0.40/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO QUAIL RUN OPERATING ASSOCIATES, PARTNERSHIP L.P. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,931.88 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $ 4,868 $0
S-20 3088 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 3089 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,173,000, less approximately $155,200 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 3090 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 3091 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2007 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 3092 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 3093 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,345,099 of balloon payments due on its mortgage debt on November 15, 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 3094 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .2% interest, consisting of a 0% limited partnership interest and a .2% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 3095 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 3096 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November 15, 2002 and require balloon payments totaling $3,345,099. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale S-29 3097 was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,868 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 3098 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,931.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 3099 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $753,216 10.50% $7,173,000 ----------
S-32 3100 - --------------- (1) The total net operating income is equal to total revenues of $1,405,748, less total expenses of $602,732 and recurring replacement costs of $49,800. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,049,932. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 753,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership.............................. 7,173,000 Plus: Cash and cash equivalents............................. 29,912 Plus: Other partnership assets, net of security deposits.... 252,399 Less: Mortgage debt, including accrued interest............. (5,015,781) Less: Accounts payable and accrued expenses................. (2,727) Less: Other liabilities..................................... (52,346) ----------- Partnership valuation before taxes and certain costs........ 2,384,457 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (155,200) Less: Closing costs......................................... (179,325) ----------- Estimated net valuation of your partnership................. 2,049,932 Percentage of estimated net valuation allocated to holders of units.................................................. 94.98% ----------- Estimated net valuation of units............................ 1,947,025 Total number of units............................. 32.0 ----------- Estimated valuation per unit................................ 60,845 =========== Cash consideration per unit................................. 60,845 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $60,845 by the $25 liquidation preference of each Preferred OP Unit to get 2,434 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $60,845 by a price of $38.69 to get 1,572.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,049,932 or .36% is the net valuation of your partnership. S-33 3101 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has increased from $136,154 for the nine months ended September 30, 1997 to $158,490 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 3102 11. The estimated unit value of $60,845, based on a total estimated value of your partnership's property of $7,173,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $4,868 per year on the number of Preferred OP Units, or distributions of $3,931.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 3103 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 3104 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2007, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 60,845 Partnership preferred units................................. 60,845(1) Partnership common units.................................... 60,845(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 60,845 Estimated going concern value............................. $ 52,774 Alternative going concern value(2)........................ $ 60,019 Net book value (deficit).................................. $(74,050)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 3105 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25% reflecting real estate risk and leverage risk associated with a debt balance which approximates 70% of real estate value. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $57,842 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $74,050 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $60,592 per unit, going concern value of $41,944 per unit and liquidation value of $55,241 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full S-38 3106 for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $253, $(18,901) and $(5,604). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 94.98% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial S-39 3107 advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $1,425,592 Operating Expenses.......................................... (631,755) Replacement Reserves -- Net................................. (156,921) Debt Service................................................ (450,309) Capital Expenditures........................................ (32,200) ---------- Net Cash Flow..................................... $ 154,407 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget S-40 3108 are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $155,200. Stanger observed that your partnership liquidation S-41 3109 value of $2,049,932 was allocated 94.98% to limited partners and was divided by the total units outstanding of 32 to provide the liquidation value per unit of $60,845. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $753,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $46,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the property were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 32 to achieve management's estimate of going concern value of $52,774 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998 on limited partnership units. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $60,845 per unit is equal to management's estimate of liquidation value, and reflects a 15% premium to management's estimate of going concern value of $52,774. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net S-42 3110 asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3%% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.75% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $60,592, $41,944 and $55,241 representing discounts to the offer price of .4%, 30.9% and (9.2)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the S-43 3111 partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 3112 YOUR PARTNERSHIP GENERAL Quail Run Associates, L.P., is a Delaware limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 32 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1984 for the purpose of owning an apartment property located in Zionsville, Indiana, known as "Quail Run Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1972 and consists of 166 apartment units. Your partnership's property had an average occupancy rate of approximately 96.49% in 1998, 89.76% in 1997 and 89.76% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations for 1999 total $155,200 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, heating, ventilation and air conditioning systems ("HVAC"), plumbing, electrical, stairwells, landscape and irrigation, drainage, and life support systems. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $668 $625 $599 $585 $555
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $112,933 of $1,368,790 of assessed valuation with a current yearly tax rate of 8.25%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 8.66% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2007 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-45 3113 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 97% and $680, respectively, at December 31, 1998, compared to 90% and $668, respectively, at December 31, 1997. In addition, the general partner noted that it expects to spend approximately $155,200 for capital improvements at the property in 1999 to repair and improve the property's HVAC, plumbing, electrical, stairwells, landscape and irrigation, drainage and life support systems. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,970,688, payable to Marine Midland Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $143,487, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, the general partner had no loans outstanding to your partnership. S-46 3114 COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $3,300,000 of limited partnership units in 1986. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2007, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to your partnership or any limited partner for any acts or failures to do any act performed by any of them in the absence of their willful malfeasance or gross negligence. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for indemnification of the general partners by your partnership for any acts or omissions performed by them. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The original cost per unit was $31,132. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in S-47 3115 your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
PERCENTAGE OF NUMBER OF UNITS TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------- ------------ 1994.................................. 0.0 0.00% 0 1995.................................. 0.0 0.00% 0 1996.................................. 0.0 0.00% 0 1997.................................. 0.0 0.00% 0 1998.................................. 0.75 2.34% 2
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.2% interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $29,603 1995........................................................ 48,022 1996........................................................ 50,482 1997........................................................ 54,217 1998........................................................ 38,668
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ---- 1994........................................................ $60,707 1995........................................................ 61,659 1996........................................................ 65,350 1997........................................................ 69,823 1998........................................................ 72,949
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-48 3116 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 90,207 $ 16,355 $ 29,913 $ 76,331 $ 128,592 $ 133,495 $ 43,569 Land & Building............... 6,617,837 6,459,063 6,477,989 6,279,871 6,096,135 5,856,607 5,771,073 Accumulated Depreciation...... (4,328,305) (4,172,854) (4,204,559) (4,049,108) (3,891,715) (3,748,341) (3,528,643) Other Assets.................. 342,290 359,897 325,588 318,433 291,273 338,478 363,767 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 2,722,029 $ 2,662,461 $ 2,628,931 $ 2,625,527 $ 2,625,285 $ 2,580,239 $ 2,649,766 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 4,420,761 $ 4,517,866 $ 4,518,914 $ 4,608,858 $ 4,691,283 $ 4,766,820 $ 4,836,043 Other Liabilities............. 509,910 446,742 479,612 456,970 453,090 324,244 267,434 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 4,930,671 $ 4,966,608 $ 4,998,526 $ 5,065,828 $ 5,144,373 $ 5,091,064 $ 5,103,477 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)........... $(2,208,642) $(2,304,147) $(2,369,595) $(2,440,301) $(2,519,088) $(2,510,825) $(2,453,711) =========== =========== =========== =========== =========== =========== ===========
QUAIL RUN ASSOCIATES, LP ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,029,867 $ 991,159 $1,331,575 $1,244,131 $1,194,163 $1,164,439 $1,105,979 Other Income................... 61,102 60,389 77,305 68,842 58,133 49,498 38,904 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $1,090,969 $1,051,548 $1,408,880 $1,312,973 $1,252,296 $1,213,937 $1,144,883 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 426,421 $ 407,130 $ 566,038 $ 525,788 $ 530,582 $ 437,761 $ 474,816 General & Administrative....... 31,489 28,962 45,383 45,581 41,527 51,308 57,095 Depreciation................... 123,746 123,746 164,995 157,393 143,374 219,698 346,893 Interest Expense............... 267,987 275,148 432,170 439,242 445,698 452,809 458,015 Property Taxes................. 82,836 80,408 127,005 66,182 99,378 109,475 84,336 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $ 932,479 $ 915,394 $1,335,591 $1,234,186 $1,260,559 $1,271,051 $1,421,155 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).............. $ 158,490 $ 136,154 $ 73,289 $ 78,787 $ (8,263) $ (57,114) $ (276,272) ========== ========== ========== ========== ========== ========== ========== Net Income (loss) per limited partnership unit............. $ 4,903.28 $ 4,212.26 $ 2,267.38 $ 2,437.47 $ (255.64) $(1,766.96) $(8,547.17) ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ -- $ -- $ 79.91 $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
S-49 3117 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $158,490 for the nine months ended September 30, 1998, compared to $136,154 for the nine months ended September 30, 1997. The increase in net income of $22,336 was primarily the result of an increase in rental revenues, partially off-set by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,090,969 for the nine months ended September 30, 1998, compared to $1,051,548 for the nine months ended September 30, 1997, an increase of $39,421, or 3.75%. This increase is due primarily to an increase in average rental rates of 3.6%, while occupancy remained constant at 97.3%. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $426,421 for the nine months ended September 30, 1998, compared to $407,130 for the nine months ended September 30, 1997, an increase of $19,291, or 4.74%. This increase is due primarily to a $5,000 increase in advertising in efforts to maintain occupancy. The increase is also due to higher maintenance costs in efforts to maintain curb appeal. Partnership Property management expenses totaled $54,457 for the nine months ended September 30, 1998, compared to $52,103 for the nine months ended September 30, 1997, an increase of $2,354. This increase is the result of the increase in revenues, as the cost is a function of rental revenues. Interest expense decreased $7,161 to $267,987 due to lower mortgage indebtedness, resulting from principal payments made during the period. General and administrative, depreciation and property taxes for the nine months ending September 30, 1998 were comparable to the respective costs for the corresponding period from the prior year. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $73,289 for the year ended December 31, 1997, compared to $78,787 for the year ended December 31, 1996. The decrease in net income of $5,498, or 7.0%, was primarily the result of increased property improvement costs offset by increased rental revenue. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,408,880 for the year ended December 31, 1997, compared to $1,312,973 for the year ended December 31, 1996, an increase of $95,907, or 7.3%. This increase was primarily the result of an increase in occupancy from 93% in 1996 to 97% in 1997. S-50 3118 In addition, the partnership increased rental rates by an average of 2% in 1998. Other income also increased by $10,050 due to increases in corporate units, cleaning/damage fees, and late payment charges. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $566,038 for the year ended December 31, 1997, compared to $525,788 for the year ended December 31, 1996, an increase of $40,250 or 7.7%. This increase resulted primarily from exterior property maintenance improvements of $23,517. Management expenses totaled $69,823 for the year ended December 31, 1997, an increase of $4,473, or 6.8%. The increase resulted from an increase in rental revenues as management fees are based on a percentage of revenue. Advertising expenses also increased by $4,006 to $41,446 due to increased periodical advertising offset by decreases in newspaper and other advertising. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $45,383 for the year ended December 31, 1997 compared to $45,581 for the year ended December 31, 1996, a decrease of $198 or 0.4%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $432,170 for the year ended December 31, 1997, compared to $439,242 for the year ended December 31, 1996, a decrease of $7,072, or 1.6%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $78,787 for the year ended December 31, 1996 compared to a net loss of $8,263 for the year ended December 31, 1997. The increase in net income was primarily the result of an increase in rental revenues due to increased occupancy and also a decrease in property improvement costs. REVENUES Rental and other property revenues from the partnership's property totaled $1,312,973 for the year ended December 31, 1996, compared to $1,252,296 for the year ended December 31, 1995, an increase of $60,677,or 4.9%. The partnership increased rental rates by an average of 4%, and experienced an increase in occupancy rate by 1% to 93%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $525,788 for the year ended December 31, 1996, compared to $530,582 for the year ended December 31, 1995, a decrease of $4,794 or 0.9%. Management expenses totaled $65,350 for the year ended December 31, 1996, compared to $61,659 for the year ended December 31, 1995, an increase of $3,691, or 6.0%. The increase resulted from increased revenue considering that management fees are based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $45,581 for the year ended December 31, 1996 compared to $41,527 for the year ended December 31, 1995, an increase of $4,054 or 9.8%. The increase is primarily due to office supplies and equipment purchases. S-51 3119 DEPRECIATION EXPENSE Depreciation expense increased 10% to $157,393 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $90,207 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $157,500, was $4,578,261. The mortgages require monthly payments of approximately $37,526 until November 2002, at which time a balloon payment of approximately $3,506,000 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. The General Partner is attempting to refinance the existing debt. The General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. S-52 3120 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 32 units of your partnership (up to 8 units) for consideration per unit of (i) 2,434 Preferred OP Units, (ii) 1,572.75 Common OP Units, or (iii) $60,845 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-53 3121 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-54 3122 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-55 3123 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-56 3124 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-57 3125 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-58 3126 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-59 3127 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-60 3128 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-61 3129 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-62 3130 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-63 3131 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-64 3132 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-65 3133 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-66 3134 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-67 3135 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-68 3136 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-69 3137 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Available Cash Flow (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2007. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating purchase, hold, lease, manage and operate Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your part- partnership organized pursuant to the nership's agreement of limited partnership, Delaware Revised Uniform Limited Part- your partnership may perform all acts nership Act (as amended from time to time, necessary or appropriate in connection or any successor to such statute) (the therewith and reasonably related thereto, "Delaware Limited Partnership Act"), including borrowing money and creating provided that such business is to be liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-70 3138 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling units for cash and notes to se- limited partners and to other persons, and lected persons who fulfill the requirements to admit such other persons as additional set forth in your partnership's agreement of limited partners, on terms and conditions limited partnership. The capital and for such capital contributions as may be contribution need not be equal for all established by the general partner in its limited partners and no action or consent is sole discretion. The net capital required in connection with the admission of contribution need not be equal for all OP any additional limited partners. Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership specifies certain contracts to contribute funds or other assets to its be entered into with the general partner and subsidiaries or other persons in which it its affiliates and the compensa- has an equity investment,
S-71 3139 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tion to be paid under such contracts. In and such persons may borrow funds from the addition, the general partner may loan your AIMCO Operating Partnership, on terms and partnership such additional sums as the conditions established in the sole and general partner deems appropriate and absolute discretion of the general partner. necessary for the conduct of your To the extent consistent with the business partnership's business. Such loans by the purpose of the AIMCO Operating Partnership general partner or its affiliates will be and the permitted activities of the general upon such terms and for such maturities as partner, the AIMCO Operating Partnership may the general partner deems reasonable and transfer assets to joint ventures, limited will bear interest at a rate the greater of liability companies, partnerships, 2 1/2% over the base rate then being charged corporations, business trusts or other by Third National Bank in Nashville, business entities in which it is or thereby Nashville, Tennessee or the actual cost to becomes a participant upon such terms and such lender to borrow such funds and the subject to such conditions consistent with terms thereof as to security and other the AIMCO Operating Partnership Agreement charges or fees will be at least as and applicable law as the general partner, favorable to your partnership as those in its sole and absolute discretion, negotiated by unaffiliated lenders on believes to be advisable. Except as comparable loans for the same purpose in the expressly permitted by the AIMCO Operating same locale. Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in the ordinary contains no restrictions on borrowings, and course of business and in connection with the general partner has full power and certain loans specified in your authority to borrow money on behalf of the partnership's agreement of limited AIMCO Operating Partnership. The AIMCO partnership, which includes loans secured by Operating Partnership has credit agreements your partnership's property. However, except that restrict, among other things, its for such loans specified in your ability to incur indebtedness. partnership's agreement of limited partnership, the limited partners owning 51% of the outstanding units must approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partner may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all limited partner at the Unitholder's own expense, to obtain a principal office of the general partner in current list of the name and last known Tennessee at all reasonable times. business, residence or mailing address of the general partner and each other OP Unitholder.
S-72 3140 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The management and control of your All management powers over the business and partnership and its business and affairs affairs of the AIMCO Operating Partnership rest exclusively with the general partner, are vested in AIMCO-GP, Inc., which is the which has all the rights and power which may general partner. No OP Unitholder has any be possessed by the general partner pursuant right to participate in or exercise control to applicable law or are necessary, advisa- or management power over the business and ble or convenient to the discharge of its affairs of the AIMCO Operating Partner- duties under your partnership's agreement of ship. The OP Unitholders have the right to limited partnership. Subject to the vote on certain matters described under limitations set forth in your partner- "Comparison of Your Units and AIMCO OP ship's agreement of limited partnership, the Units -- Voting Rights" below. The general general partner has the right, power and partner may not be removed by the OP authority to exercise full and complete Unitholders with or without cause. discretion in the management and control of the business of your partnership. Limited In addition to the powers granted a general partners may not take part in or interfere partner of a limited partnership under in any with the conduct or control of the applicable law or that are granted to the business of your partnership and have no general partner under any other provision of right or authority to act for or bind your the AIMCO Operating Partnership Agreement, partnership in any manner, except as the general partner, subject to the other otherwise provided in your partnership's provisions of the AIMCO Operating agreement of limited partnership. Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts or failures to do any act performed by losses sustained, liabilities incurred or it in the absence of their willful benefits not derived as a result of errors malfeasance or gross negligence. Your in judgment or mistakes of fact or law of partnership's agreement of limited any act or omission if the general partner partnership does not provide for acted in good faith. The AIMCO Operating indemnification of the general partner by Partnership Agreement provides for your partnership for any acts or omissions indemnification of AIMCO, or any director or performed by them. officer of AIMCO (in its capacity as the previous
S-73 3141 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner for cause the business and affairs of the AIMCO upon a vote of the limited partners owning Operating Partnership. The general partner at least 51% of the outstanding units. The may not be removed as general partner of the general partner may resign with the approval AIMCO Operating Partnership by the OP of the limited partners owning at least 51% Unitholders with or without cause. Under the of the outstanding units upon the giving of AIMCO Operating Partnership Agreement, the notice to any remaining general partner and general partner may, in its sole discretion, the limited partners. All the limited prevent a transferee of an OP Unit from partners must approve the election of a becoming a substituted limited partner substitute or additional general partner. A pursuant to the AIMCO Operating Partnership limited partner may not transfer his Agreement. The general partner may exercise interests without the written consent of the this right of approval to deter, delay or general partner which may be withheld at the hamper attempts by persons to acquire a sole discretion of the general partner. controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add Agreement,
S-74 3142 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP representations, duties or obligations of whereby the general partner may, without the the general partner or its affiliates or consent of the OP Unitholders, amend the surrender any right or power granted to the AIMCO Operating Partnership Agreement, general partner or their affiliates in your amendments to the AIMCO Operating partnership's agreement of limited part- Partnership Agreement require the consent of nership for the benefit of the limited the holders of a majority of the outstanding partners, to cure any ambiguity, to correct Common OP Units, excluding AIMCO and certain or supplement any provision which may be other limited exclusions (a "Majority in inconsistent with any other provision Interest"). Amendments to the AIMCO provided that the general partner receive an Operating Partnership Agreement may be opinion of counsel that such amendment does proposed by the general partner or by not adversely affect the rights of the holders of a Majority in Interest. Following limited partners and to admit additional or such proposal, the general partner will substituted limited partners. Any other submit any proposed amendment to the OP amendments to your partnership's agreement Unitholders. The general partner will seek of limited partnership must be approved by the written consent of the OP Unitholders on the limited partners owning 51% of the the proposed amendment or will call a units. The general partner must submit a meeting to vote thereon. See "Description of written statement of the proposed amendment OP Units -- Amendment of the AIMCO Operating together with their recommendation as to Partnership Agreement" in the accompanying such proposed amendment. For the purposes of Prospectus. obtaining the consent of the limited partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, except as provided gross negligence, no OP Unitholder has under applicable law, a limited partner is personal liability for the AIMCO Operating not bound by or personally liable for the Partnership's debts and obligations, and expenses, liabilities or obligations of your liability of the OP Unitholders for the partnership in excess of such limited AIMCO Operating Partnership's debts and partners' capital contribution, including obligations is generally limited to the deferred payment to be made by such limited amount of their investment in the AIMCO partner for its units, and any mandatory Operating Partnership. However, the assessments provided for in your partner- limitations on the liability of limited ship's agreement of limited partnership partners for the obligations of a limited which may partnership
S-75 3143 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP be levied against those limited partners who have not been clearly established in some do not pay for issued units entirely in states. If it were determined that the AIMCO cash. Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must manage and control your partnership, generally requires a general partner of a its business and affairs to the best of its Delaware limited partnership to adhere to abilities and must use its best efforts to fiduciary duty standards under which it owes carry out the business of your partnership. its limited partners the highest duties of The general partner must devote itself to good faith, fairness and loyalty and which the business of your partnership to the generally prohibit such general partner from extent that they, in their discretion, deem taking any action or engaging in any necessary for the efficient carrying on transaction as to which it has a conflict of thereof. The general partner must act as a interest. The AIMCO Operating Partnership fiduciary with respect to the safekeeping Agreement expressly authorizes the general and use of the funds and assets of your partner to enter into, on behalf of the partnership. However, the general partner AIMCO Operating Partnership, a right of may engage in whatever activities it first opportunity arrangement and other chooses, whether or not the same be conflict avoidance agreements with various competitive with your partnership, without affiliates of the AIMCO Operating having or incurring any obligation to offer Partnership and the general partner, on such any interest in such activities to your terms as the general partner, in its sole partnership or any limited partner. and absolute discretion, believes are advisable. The AIMCO Operating Partnership In general, your partnership's agreement of Agreement expressly limits the liability of limited partnership and the AIMCO Operating the general partner by providing that the Partnership Agreement have limitations on general partner, and its officers and the liability of the general partner but directors will not be liable or accountable such limitations differ and provide more in damages to the AIMCO Operating protection for the general partner of the Partnership, the limited partners or as- AIMCO Operating Partnership. signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income
S-76 3144 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-77 3145 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the vote of the AIMCO Operating Partnership OP Unitholders have voting limited partners owning 51% Agreement, the holders of rights only with respect to of the outstanding units is the Preferred OP Units will certain limited matters such necessary to remove the gen- have the same voting rights as certain amendments and eral partner or any other as holders of the Common OP termination of the AIMCO general partner, approve the Units. See "Description of Operating Partnership resignation of the general OP Units" in the accompany- Agreement and certain partner, change the nature ing Prospectus. So long as transactions such as the of your partnership's busi- any Preferred OP Units are institution of bankruptcy ness and approve, amend your outstanding, in addition to proceedings, an assignment partnership's agreement of any other vote or consent of for the benefit of creditors limited partnership or partners required by law or and certain transfers by the disapprove the sale of all by the AIMCO Operating general partner of its or substantially all of the Partnership Agreement, the interest in the AIMCO assets of your partnership. affirmative vote or consent Operating Partnership or the All limited partners must of holders of at least 50% admission of a successor approve the election of a of the outstanding Preferred general partner. substitute or additional OP Units will be necessary general partner. for effecting any amendment Under the AIMCO Operating The general partner may of any of the provisions of Partnership Agreement, the cause the dissolution of the the Partnership Unit general partner has the your partnership by Designation of the Preferred power to effect the retiring. In such event, the OP Units that materially and acquisition, sale, transfer, business of your partnership adversely affects the rights exchange or other may be continued if, within or preferences of the disposition of any assets of ninety days, the limited holders of the Preferred OP the AIMCO Operating partners holding at least Units. The creation Partnership (including, but 51% of the units elect a new not limited to, the exercise general partner to or
S-78 3146 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS continue the business of or issuance of any class or grant of any conversion, your partnership, in series of partnership units, option, privilege or reconstituted form if including, without subscription right or any necessary. limitation, any partner- other right available in In general, you have greater ship units that may have connection with any assets voting rights in your rights senior or superior to at any time held by the partnership than you will the Preferred OP Units, AIMCO Operating Partnership) have as an OP Unitholder. OP shall not be deemed to or the merger, Unitholders can not remove materially adversely affect consolidation, the general partner of the the rights or preferences of reorganization or other AIMCO Operating Partnership. the holders of Preferred OP combination of the AIMCO Units. With respect to the Operating Partnership with exercise of the above or into another entity, all described voting rights, without the consent of the each Preferred OP Units OP Unitholders. shall have one (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to refinancing, is to be Operating Partner-
S-79 3147 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS shared among the partners. ship, quarterly cash cause the AIMCO Operating Distributions of the distributions at the rate of Partnership to distribute Available Cash Flow will be $0.50 per Preferred OP Unit; quarterly all, or such made in quarterly provided, however, that at portion as the general installments within 45 days any time and from time to partner may in its sole and after the end of such time on or after the fifth absolute discretion quarter or at such time or anniversary of the issue determine, of Available Cash times as the general part- date of the Preferred OP (as defined in the AIMCO ner deems practical. The Units, the AIMCO Operating Operating Partnership distributions payable to the Partnership may adjust the Agreement) generated by the partners are not fixed in annual distribution rate on AIMCO Operating Partnership amount and depend upon the the Preferred OP Units to during such quarter to the operating results and net the lower of (i) 2.00% plus general partner, the special sales or refinancing the annual interest rate limited partner and the proceeds available from the then applicable to U.S. holders of Common OP Units disposition of your Treasury notes with a on the record date es- partnership's assets. maturity of five years, and tablished by the general (ii) the annual dividend partner with respect to such rate on the most recently quarter, in accordance with issued AIMCO non-convertible their respective interests preferred stock which ranks in the AIMCO Operating on a parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the AIMCO Operating Partnership and no other dis-
S-80 3148 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tribution of cash or other (i) satisfy the requirements property may be declared or for qualifying as a REIT made, directly or under the Code and the indirectly, by the AIMCO Treasury Regulations and Operating Partnership with (ii) avoid any Federal respect to any Junior Units income or excise tax (as defined below), nor liability of AIMCO. See shall any Junior Units be "Description of OP redeemed, purchased or Units -- Distributions" in otherwise acquired for the accompanying Prospectus. consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such transferee and the Preferred OP Units Operating Partnership will become a substituted are not listed on any Agreement restricts the limited partner if: (1) the securities exchange. The transferability of the OP transfer is not in respect Preferred OP Units are Units. Until the expiration of fractional units, except subject to restrictions on of one year from the date on in limited circumstances, transfer as set forth in the which an OP Unitholder (2) the assignor and AIMCO Operating Partnership acquired OP Units, subject assignee execute, Agreement. to certain exceptions, such acknowledge and deliver OP Unitholder may not instruments of transfer Pursuant to the AIMCO transfer all or any por- satisfactory to the general Operating Partnership tion of its OP Units to any partner, (3) the transferor Agreement, until the transferee without the pays the transfer fee, (4) expiration of one year from consent of the general the general partner consent, the date on which a holder partner, which consent may which consent will be of Preferred OP Units be withheld in its sole and withheld if, among other acquired Preferred OP Units, absolute discretion. After reasons, the transfer subject to certain the expiration of one year, violates Federal or state exceptions, such holder of such OP Unitholder has the securities laws or results Preferred OP Units may not right to transfer all or any in the termination of your transfer all or any portion portion of its OP Units to partnership for tax purposes of its Preferred OP Units to any person, subject to the and (6) the assignor and any transferee without the satisfaction of certain con- assignee have complied with consent of the general ditions specified in the such other conditions as set partner, which consent may AIMCO Operating Partnership forth in your partnership's be withheld in its sole and Agreement, including the agreement of limited absolute discretion. After general partner's right of partnership. the expiration of one year, first refusal. See There are no redemption such holders of Preferred OP "Description of OP Units -- rights associated with your Units has the right to Transfers and Withdrawals" units. transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership Agreement, to
S-81 3149 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS After a one-year holding require the AIMCO Operating period, a holder may redeem Partnership to redeem all or Preferred OP Units and a portion of the Common OP receive in exchange Units held by such party in therefor, at the AIMCO Oper- exchange for a cash amount ating Partnership's option, based on the value of shares (i) subject to the terms of of Class A Common Stock. See any Senior Units (as defined "Description of OP below), cash in an amount Units -- Redemption Rights" equal to the Liquidation in the accompanying Preference of the Preferred Prospectus. Upon receipt of OP Units tendered for a notice of redemption, the redemption, (ii) a number of AIMCO Operating Partnership shares of Class A Common may, in its sole and Stock of AIMCO that is equal absolute discretion but in Value to the Liquidation subject to the restrictions Preference of the Preferred on the ownership of Class A OP Units tendered for Common Stock imposed under redemption, or (iii) for AIMCO's charter and the Preferred OP Units redeemed transfer restrictions and after a two-year holding other limitations thereof, period, a number of shares elect to cause AIMCO to of Class I Preferred Stock acquire some or all of the of AIMCO that pay an tendered Common OP Units in aggregate amount of exchange for Class A Common dividends equivalent to the Stock, based on an exchange distributions on the ratio of one share of Class Preferred OP Units tendered A Common Stock for each Com- or redemption; provided mon OP Unit, subject to that such shares are part of adjustment as provided in a class or series of the AIMCO Operating preferred stock that is then Partnership Agreement. listed on the NYSE or an- other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-82 3150 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-83 3151 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-84 3152 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-85 3153 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-86 3154 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-87 3155 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-88 3156 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-89 3157 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-90 3158 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-91 3159 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $50,482 in 1996, $54,217 in 1997 and $22,491 in 1998. The property manager received management fees of $65,350 in 1996, $69,823 in 1997 and $72,949 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-92 3160 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $486,760 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-93 3161 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Quail Run Associates, LP as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1997 financial statements contains an explanatory paragraph that states that the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. S-94 3162 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 3163 QUAIL RUN ASSOCIATES, LP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 90,207 Receivables and deposits.................................... 32,771 Restricted escrows.......................................... 194,810 Other assets................................................ 114,709 Investment property: Land...................................................... $ 332,000 Building and related personal property.................... 6,285,837 ----------- 6,617,837 Less: Accumulated depreciation............................ (4,328,305) 2,289,532 ----------- ----------- Total Assets...................................... $ 2,722,029 =========== LIABILITIES AND PARTNERS' DEFICIT Other accrued liabilities................................... $ 8,435 Accrued interest............................................ 343,363 Property tax payable........................................ 126,172 Tenant security deposits.................................... 31,940 Notes payable............................................... 4,420,761 Partners' deficit........................................... (2,208,642) ----------- Total liabilities and partners' deficit........... $ 2,722,029 ===========
See Accompanying Notes to Financial Statements. F-2 3164 QUAIL RUN ASSOCIATES, LP CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,029,867 $ 991,159 Other income.............................................. 61,102 60,389 ---------- ---------- Total revenues.................................... 1,090,969 1,051,548 Expenses: Operating expenses........................................ 426,421 407,130 General and administrative expenses....................... 31,489 28,962 Depreciation expense...................................... 123,746 123,746 Interest expense.......................................... 267,987 275,148 Property tax expense...................................... 82,836 80,408 ---------- ---------- Total expenses.................................... 932,479 915,394 Net income........................................ $ 158,490 $ 136,154 ========== ==========
See Accompanying Notes to Financial Statements. F-3 3165 QUAIL RUN ASSOCIATES, LP CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- OPERATING ACTIVITIES: Net Income................................................ $ 158,490 $ 136,154 Adjustments to reconcile net income to net cash provided by operating activities:............................... -- -- Depreciation and amortization.......................... 123,746 123,746 Changes in accounts:................................... -- -- Receivables and deposits and other assets............ (10,597) (36,044) Accounts payable and accrued expenses................ 32,761 (8,228) --------- --------- Net cash provided by operating activities......... 304,400 215,628 INVESTING ACTIVITIES Property improvements and replacements.................... (139,848) (179,192) Net increase in restricted escrows........................ (6,105) (5,420) --------- --------- Net cash used in investing activities............. (145,953) (184,612) FINANCING ACTIVITIES Payments on mortgage...................................... (98,153) (90,992) --------- --------- Net cash used in financing activities............. (98,153) (90,992) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 60,294 (59,976) Cash and cash equivalents at beginning of period............ 29,913 76,331 --------- --------- Cash and cash equivalents at end of period.................. $ 90,207 $ 16,355 ========= =========
See Accompanying Notes to Financial Statements. F-4 3166 QUAIL RUN ASSOCIATES, LP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Quail Run Associates, LP of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 3167 QUAIL RUN ASSOCIATES, LP FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 3168 INDEPENDENT AUDITORS' REPORT General Partners Quail Run Associates, LP: We have audited the accompanying balance sheets of Quail Run Associates, LP as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quail Run Associates, LP as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 24, 1998 F-7 3169 QUAIL RUN ASSOCIATES, LP BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 29,913 $ 76,331 Receivables and deposits.................................... 50,686 48,815 Restricted escrows.......................................... 188,705 181,440 Other assets................................................ 86,197 88,178 Investment properties: Land...................................................... 332,000 332,000 Buildings and related personal property................... 6,145,989 5,947,871 ----------- ----------- 6,477,989 6,279,871 Less accumulated depreciation............................. (4,204,559) (4,049,108) ----------- ----------- 2,273,430 2,230,763 ----------- ----------- $ 2,628,931 $ 2,625,527 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 2,727 $ 61,682 Payable to affiliate...................................... -- 1,171 Tenant security deposit liabilities....................... 33,777 33,097 Accrued taxes............................................. 109,583 87,103 Other liabilities......................................... 333,525 273,917 Notes payable............................................. 4,518,914 4,608,858 Partners' deficit........................................... (2,369,595) (2,440,301) ----------- ----------- $ 2,628,931 $ 2,625,527 =========== ===========
See Accompanying Notes to Financial Statements F-8 3170 QUAIL RUN ASSOCIATES, LP STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,331,575 $ 1,244,131 Other income.............................................. 77,305 68,842 ----------- ----------- Total revenues.................................... 1,408,880 1,312,973 ----------- ----------- Expenses: Operating................................................. 566,038 525,788 General and administrative................................ 45,383 45,581 Depreciation.............................................. 164,995 157,393 Interest.................................................. 432,170 439,242 Property taxes............................................ 127,005 66,182 ----------- ----------- Total expenses.................................... 1,335,591 1,234,186 ----------- ----------- Net income........................................ 73,289 78,787 Distributions to partners................................... (2,583) -- Partners' deficit at beginning of year...................... (2,440,301) (2,519,088) ----------- ----------- Partners' deficit at end of year............................ $(2,369,595) $(2,440,301) =========== ===========
See Accompanying Notes to Financial Statements F-9 3171 QUAIL RUN ASSOCIATES, LP STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 73,289 $ 78,787 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 164,995 157,393 Amortization of discounts and loan costs............... 47,535 46,030 Loss on disposition of property........................ 8,577 -- Change in accounts: Receivables and deposits............................. (1,871) (5,631) Other assets......................................... (13,008) -- Accounts payable..................................... (58,955) (4,045) Payable to affiliate................................. (1,171) 1,171 Tenant security deposit liabilities.................. 680 (972) Accrued taxes........................................ 22,480 (16,918) Other liabilities.................................... 59,608 24,644 --------- --------- Net cash provided by operating activities......... 302,159 280,459 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (216,239) (183,736) Net deposits to restricted escrows........................ (7,265) (2,341) --------- --------- Net cash used in investing activities............. (223,504) (186,077) --------- --------- Cash flows from financing activities: Distributions to partners................................. (2,583) -- Payments on notes payable................................. (122,490) (113,551) --------- --------- Net cash used in financing activities............. (125,073) (113,551) --------- --------- Net decrease in cash and cash equivalents......... (46,418) (19,169) Cash and cash equivalents at beginning of year.............. 76,331 95,500 --------- --------- Cash and cash equivalents at end of year.................... $ 29,913 $ 76,331 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 327,820 $ 336,756 ========= =========
See Accompanying Notes to Financial Statements F-10 3172 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Quail Run Associates, LP (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 31, 1984. The Partnership owns and operates a 166 unit apartment complex, Quail Run Apartments, in Indianapolis, Indiana. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings and personal property are depreciated over a 5 to 25 year period. Other Assets Other assets at December 31, 1997 and 1996, include unamortized deferred loan costs of $73,189 and $88,178, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 3173 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996, consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the 1992 loan refinancing were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements have been completed and the excess funds will be returned for property operations................................................ $ 11,961 $ 11,961 Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing were placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... 176,744 169,479 -------- -------- $188,705 $181,440 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 and 1996, consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $36,617, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $4,102,817 $4,225,307 Second mortgage note payable in interest only monthly installments of $909, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 143,487 143,487 Unsecured 12.5% promissory note payable to Jacques-Miller Income Fund II, an affiliate, matured in June 1997, monthly payments of excess cash flows from the preceding year, as defined in the note agreement.................... 454,522 454,522 ---------- ---------- Principal balance at year end............................... 4,700,826 4,823,316 Less unamortized discount................................... (181,912) (214,458) ---------- ---------- $4,518,914 $4,608,858 ========== ==========
Accrued interest on the note payable to Jacques-Miller Income Fund II, which is included in other liabilities, was $301,121 and $244,305 at December 31, 1997 and 1996, respectively. The Managing General Partner is currently attempting to either extend the maturity date or refinance the Partnership's unsecured promissory note in order to obtain the funds necessary to satisfy the amount due to Jacques-Miller Income Fund II. The negotiations are expected to be completed during the second quarter of 1998; however, there is no assurance that the negotiations will be successful. F-12 3174 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the notes during the years subsequent to December 31, 1997, are as follows: 1998..................................................... $ 586,650 1999..................................................... 142,529 2000..................................................... 153,746 2001..................................................... 165,847 2002..................................................... 3,652,054 ---------- $4,700,826 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $69,823 $65,350 Partnership administration fee.............................. $15,444 $16,848 Reimbursement for services of affiliates.................... $21,534 $21,031 Construction oversight costs................................ $17,239 $12,603
NOTE E -- GOING CONCERN The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The Managing General Partner is attempting to refinance the existing debt. The Managing General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. F-13 3175 QUAIL RUN, ASSOCIATES, LP FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 3176 INDEPENDENT AUDITORS' REPORT General Partners Quail Run, Associates, LP: We have audited the accompanying balance sheets of Quail Run Associates, LP as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quail Run, Associates, LP as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 26, 1997 F-15 3177 QUAIL RUN ASSOCIATES, LP BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 76,331 $ 95,500 Restricted-tenant security deposits....................... 33,120 34,092 Accounts receivable......................................... 1,178 340 Escrow for taxes............................................ 14,517 8,752 Restricted escrows (Note B)................................. 181,440 179,099 Other assets................................................ 88,178 103,082 Investment properties (Note C): Land...................................................... 332,000 332,000 Buildings and related personal property................... 5,947,871 5,764,135 ----------- ----------- 6,279,871 6,096,135 Less accumulated depreciation............................. (4,049,108) (3,891,715) ----------- ----------- 2,230,763 2,204,420 ----------- ----------- $ 2,625,527 $ 2,625,285 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 61,682 $ 65,727 Payable to affiliate...................................... 1,171 -- Tenant security deposits.................................. 33,097 34,069 Accrued taxes............................................. 87,103 104,021 Other liabilities (Note C)................................ 273,917 249,273 Notes payable (Note C).................................... 4,608,858 4,691,283 Partners' deficit........................................... (2,440,301) (2,519,088) ----------- ----------- $ 2,625,527 $ 2,625,285 =========== ===========
See Accompanying Notes to Financial Statements F-16 3178 QUAIL RUN ASSOCIATES, LP STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,244,131 $ 1,194,163 Other income.............................................. 68,842 58,133 ----------- ----------- Total revenues.................................... 1,312,973 1,252,296 ----------- ----------- Expenses: Operating (Note D)........................................ 365,962 343,849 General and administrative (Note D)....................... 45,581 41,527 Maintenance............................................... 159,826 186,733 Depreciation.............................................. 157,393 143,374 Interest.................................................. 439,242 445,698 Property taxes............................................ 66,182 99,378 ----------- ----------- Total expenses.................................... 1,234,186 1,260,559 ----------- ----------- Net income (loss)........................................... 78,787 (8,263) Partners' deficit at beginning of year...................... (2,519,088) (2,510,825) ----------- ----------- Partners' deficit at end of year............................ $(2,440,301) $(2,519,088) =========== ===========
See Accompanying Notes to Financial Statements F-17 3179 QUAIL RUN ASSOCIATES, LP STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 78,787 $ (8,263) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 157,393 143,374 Amortization of discounts and loan costs............... 46,030 44,629 Change in accounts: Restricted cash...................................... 972 4,102 Accounts receivable.................................. (838) 1,518 Escrow for taxes..................................... (5,765) 22,478 Accounts payable..................................... (4,045) 50,796 Payable to affiliate................................. 1,171 -- Tenant security deposit liabilities.................. (972) (3,365) Accrued taxes........................................ (16,918) 117 Other liabilities.................................... 24,644 81,298 --------- --------- Net cash provided by operating activities......... 280,459 336,684 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (183,736) (239,528) Deposits to restricted escrows............................ (7,918) (5,816) Receipts from restricted escrows.......................... 5,577 14,127 --------- --------- Net cash used in investing activities............. (186,077) (231,217) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (113,551) (105,268) --------- --------- Net cash used in financing activities............. (113,551) (105,268) --------- --------- Net increase (decrease) in cash................... (19,169) 199 Cash and cash equivalents at beginning of year.............. 95,500 95,301 --------- --------- Cash and cash equivalents at end of year.................... $ 76,331 $ 95,500 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 336,756 $ 345,042 ========= =========
See Accompanying Notes to Financial Statements F-18 3180 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Quail Run Associates, LP (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 31, 1984. The Partnership owns and operates a 166 unit apartment complex, Quail Run Apartments in Indianapolis, Indiana. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings and personal property are depreciated over a 5 to 25 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 3181 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1996 and the excess funds will be returned for property operations in 1997........................................ $ 11,961 $ 11,178 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 169,479 167,921 -------- -------- $181,440 $179,099 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $36,617, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $4,225,307 $4,338,858 Second mortgage note payable in interest only monthly installments of $909, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 143,487 143,487 Unsecured 12.5% promissory note payable to Jacques-Miller Income Fund II, an affiliate, due June 1997, monthly payments of excess cash flows from the preceding year, as defined in the note agreement............................. 454,522 454,522 ---------- ---------- Principal balance at year end............................... 4,823,316 4,936,867 Less unamortized discount................................... (214,458) (245,584) ---------- ---------- $4,608,858 $4,691,283 ========== ==========
Accrued interest on the note payable to Jacques-Miller Income Fund II, which is included in other liabilities, was $244,305 and $187,490 at December 31, 1996 and 1995, respectively. Scheduled principal payments of the notes during the years subsequent to December 31, 1996 are as follows: 1997.................................................... $ 577,011 1998.................................................... 132,129 1999.................................................... 142,529 2000.................................................... 153,746 2001.................................................... 165,847 Thereafter.............................................. 3,652,054 ---------- $4,823,316 ==========
F-20 3182 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time without penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $65,350 $61,659 Partnership administration fee.............................. $16,848 $12,298 Reimbursement for services of affiliates.................... $21,031 $21,655 Construction fee............................................ $12,603 $14,069
F-21 3183 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 3184 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 3185 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 3186 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3187 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3188 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3189 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3190 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3191 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3192 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3193 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3194 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3195 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3196 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3197 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3198 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3199 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3200 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3201 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3202 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3203 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3204 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3205 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3206 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3207 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3208 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3209 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3210
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3211 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3212
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3213 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3214 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3215 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3216
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3217 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3218 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3219 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3220
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3221 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3222 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3223 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3224 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3225 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3226 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3227 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3228 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3229 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3230 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3231 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3232 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3233 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Quail Run Associates L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Quail Run Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $60,845 in cash, or 1,572.75 Common OP Units of the Purchaser, or 2,434 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3234 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3235 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3236 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3237
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3238
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3239
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3240
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3241 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3242 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Ravensworth Associates Limited Partnership in exchange for your choice of: 4.00 of our 8.0% Class Two Partnership Preferred Units; 2.75 of our Partnership Common Units; or $100 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $100 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3243 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Ravensworth Associates Limited Partnership............. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-25 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-39 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-52 Terms of the Offer; Expiration Date.......... S-52 Acceptance for Payment and Payment for Units...................................... S-52 Procedure for Tendering Units................ S-53 Withdrawal Rights............................ S-56 Extension of Tender Period; Termination; Amendment.................................. S-56 Proration.................................... S-57
i 3244
PAGE ----- Fractional OP Units.......................... S-57 Future Plans of the AIMCO Operating Partnership................................ S-57 Voting by the AIMCO Operating Partnership.... S-58 Dissenters' Rights........................... S-58 Conditions of the Offer...................... S-58 Effects of the Offer......................... S-61 Certain Legal Matters........................ S-61 Fees and Expenses............................ S-63 Accounting Treatment......................... S-63 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-64 Tax Consequences of Exchanging Units Solely for OP Units............................... S-64 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-65 Tax Consequences of Exchanging Units Solely for Cash................................... S-65 Disguised Sale Treatment..................... S-65 Adjusted Tax Basis........................... S-66 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-66 Passive Activity Losses...................... S-66 Tax Reporting................................ S-67 Foreign Offerees............................. S-67 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-67 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-69 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-77 DESCRIPTION OF PREFERRED OP UNITS.............. S-82 General...................................... S-82 Ranking...................................... S-82
PAGE ----- Distributions................................ S-82 Allocation................................... S-83 Liquidation Preference....................... S-83 Redemption................................... S-84 Voting Rights................................ S-84 Restrictions on Transfer..................... S-85 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-85 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-87 CONFLICTS OF INTEREST.......................... S-91 Conflicts of Interest with Respect to the Offer...................................... S-91 Conflicts of Interest that Currently Exist for Your Partnership....................... S-91 Competition Among Properties................. S-91 Features Discouraging Potential Takeovers.... S-91 Future Exchange Offers....................... S-91 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-92 LEGAL MATTERS.................................. S-93 EXPERTS........................................ S-93 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3245 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a controlling ownership interest in the general partner of your partnership, Winthrop Securities Co., Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $12,858,000, less approximately $1,217,055 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 3246 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3247 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 3248 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 3249 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $8,875,400 of balloon payments due on its mortgage debt in November 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of S-5 3250 the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2003 and require balloon payments of $8,875,400. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or S-6 3251 cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a S-7 3252 fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3253 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.61% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. We determined your partnership's value as follows: Net operating income........................................ $ 1,350,000 Capitalization rate......................................... 10.50% ------------ Gross valuation of partnership property..................... $ 12,858,000 Net Cash Shortfall.......................................... 1,168,575 Plus: Cash and cash equivalents............................. 578,121 Plus: Other partnership assets, net of security deposits.... 45,289 Less: Mortgage debt, including accrued interest............. (13,014,001) Less: Accounts payable and accrued expenses................. (68,578) Less: Other liabilities..................................... (26,901) ------------ Partnership valuation before taxes and certain costs........ 1,538,505 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (1,217,055) Less: Closing costs......................................... (321,450) ------------ Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. n/a ------------ Estimated net valuation of units............................ 0 Total number of units............................. 50.0 ------------ Estimated valuation per unit................................ 0 ============ Cash consideration per unit................................. $ 0 ============
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP Units per unit. S-9 3254 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 100 Partnership Preferred Units................................. $ 100 Partnership Common Units.................................... $ 100 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Alternative going concern value(1)........................ 0 Net book value (deficit).................................. $(208,629)
- --------------- (1) Assumes sale of properties when balloon payments are due instead of refinancing the mortgages. S-10 3255 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Ravensworth Associates Limited Partnership is a Massachusetts limited partnership which was formed on June 21, 1983 for the purpose of owning and operating a single apartment property located in Annandale, Virginia, known as "Ravensworth Towers Apartments." Your partnership's property consists of 219 units and was built in 1974. Your partnership has no employees. As of September 30, 1998, there were 50 units of limited partnership interest issued and outstanding, which were held of record by 59 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 380 limited partnership units in 1983. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $9,730,882, payable to FNMA, which bears interest at the rate of 8.38%. The mortgage debt is due in November 2003. Your partnership also has a second mortgage note outstanding of 2,966,882, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 3256 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 4.00 of our Class Two Partnership Preferred Units; - 2.75 of our Partnership Common Units; or - $100 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 50 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 4.00 Preferred OP Units, 2.75 Common OP Units, or $100 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 3257 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 3258 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $100 in cash, 4.00 Preferred OP Units or 2.75 Common OP Units. Both your units and the OP Units are S-14 3259 subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $100. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $24,155 for the fiscal year ended December 31, 1998. The property manager received management fees of $118,622 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,250 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 3260 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 3261
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 3262 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 3263
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 3264 SUMMARY FINANCIAL INFORMATION OF RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Ravensworth Associates Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Ravensworth Associates Limited Partnership for the years ended December 31, 1997 and 1996 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP
FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- ----------------------- 1998 1997 1997 1996 ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues............................................ $1,737,515 $1,742,153 $2,330,706 $2,259,496 Net Income/(Loss)......................................... (240,765) (129,694) (195,841) (459,578) Net Income per limited partnership unit................... (4,815) (2,594) (3,917) (9,192) Distributions per limited partnership unit................ -- -- -- -- Distributions per limited partnership unit (which represent a return of capital).......................... -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------- 1998 1997 1997 1996 ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents................................. $ 485,939 $ 536,753 $ 578,121 $ 547,609 Real Estate, Net of Accumulated Depreciation.............. 6,724,975 6,958,126 6,851,703 7,137,802 Total Assets.............................................. 7,556,993 7,872,446 7,777,284 8,086,742 Notes Payable............................................. 12,832,583 12,964,814 12,932,783 13,056,992 ----------- ----------- ----------- ----------- Partners' Deficit........................................... $(5,574,962) $(5,268,050) $(5,334,197) $(5,138,356) Total Distributions......................................... $ -- $ -- $ -- $ -- Net increase (decrease) in cash and cash equivalents........ $ (121,803) $ (41,452) $ 30,512 $ (331,578) Net cash provided by operating activities................... $ 216,491 $ 237,514 $ 354,105 $(1,842,603)
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
RAVENSWORTH AIMCO ASSOCIATES OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $8.00 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $6.88 $0
S-20 3265 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 3266 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $12,858,000 less approximately $1,217,055 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 3267 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 3268 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 3269 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 3270 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $8,875,400 of balloon payments due on its mortgage debt in November 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 3271 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, no limited partnership interest and controls the general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 3272 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 3273 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $0 for the nine months ended September 30, 1997, to $0 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2003 and require balloon payments totaling $8,875,400. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the property or refinance its indebtedness in 2003 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's properties would require a vote of all the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, S-29 3274 would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 3275 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 3276 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.61% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $1,350,042 10.50% $12,858,000
- --------------- (1) The total net operating income is equal to total revenues of $2,345,011, less total expenses of $929,269 and recurring replacement costs of $65,700. S-32 3277 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $0. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. Net operating income........................................ $ 1,350,000 Capitalization rate......................................... 10.50% ------------ Gross valuation of partnership property..................... 12,858,000 Net Cash Shortfall.......................................... 1,168,575 Plus: Cash and cash equivalents............................. 578,121 Plus: Other partnership assets, net of security deposits.... 45,289 Less: Mortgage debt, including accrued interest............. (13,014,001) Less: Accounts payable and accrued expenses................. (68,578) Less: Other liabilities..................................... (28,901) ------------ Partnership valuation before taxes and certain costs........ 1,538,505 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (1,217,055) Less: Closing costs......................................... (321,450) ------------ Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. n/a ------------ Estimated net valuation of units............................ 0 Total number of units............................. 50.0 ------------ Estimated valuation per unit................................ 0 ============ Cash consideration per unit................................. 0 ============
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $0 or 0.00% is the net valuation of your partnership. S-33 3278 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has increased from $(129,694) for the nine months ended September 30, 1997 to $(240,765) for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 3279 11. The estimated unit value of $100, based on a total estimated value of your partnership's property of $12,858,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $8.00 per year on the number of Preferred OP Units, or distributions of $6.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 3280 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 3281 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT --------- Cash offer price............................................ $ 100 Partnership preferred units................................. $ 100(1) Partnership common units.................................... $ 100(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(208,629) Alternative going concern value........................... $ 0(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 3282 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 40%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $0 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in November 2003. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $0 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $(208,629) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $0 per unit, going concern value of $0 per unit and liquidation value of $0 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market S-38 3283 Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents (discounts) to the offer price of $(100), $(100) and $(100). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. S-39 3284 EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
RAVENSWORTH APARTMENTS ----------- Total Revenues.............................................. $ 2,375,722 Operating Expenses.......................................... (1,061,352) Replacement Reserves -- Net................................. (214,946) Debt Service................................................ (1,105,428) Capital Expenditures........................................ 0 ----------- Net Cash Flow..................................... $ (6,004) ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we S-40 3285 deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the S-41 3286 gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $1,217,055. Stanger observed that your partnership liquidation value was negative and therefore a minimum price of $100 was set by AIMCO. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,350,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; (ii) cash reserves; and (iii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at an 8% interest rate was assumed due in part to the substantial leverage on the property. At the end of the ten-year projection period, the property was assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 40%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was negative and therefore deemed zero. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units of the partnership were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $100 per unit is equal to management's minimum price value, and reflects a $100 premium to management's estimate of going concern value of $0. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing with the third year after the closing of this transaction, preferred stock of AIMCO with a value equal to $25. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1998. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value S-42 3287 of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 9.75%, transaction costs of 2.5% to 5.0%, growth rates of 3% and terminal capitalization rate of 10.25%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 40% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 40% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to the property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $0, $0, and $0 representing discounts to the offer price of $100. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or S-43 3288 other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 3289 YOUR PARTNERSHIP GENERAL Ravensworth Associates Limited Partnership, is a Massachusetts limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in November 1997. AIMCO acquired Insignia in October 1998. There are currently a total of 59 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 21, 1983 for the purpose of owning an apartment property located in Annandale, Virginia, known as "Ravensworth Tower Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1974 and consists of 219 apartment units. There are 144 one-bedroom apartments and 75 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 94.81% in 1998. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations for 1999 total $1,217,055 and are intended to be paid for out of cash flow or borrowings. Renovation items include heating, ventilation and air conditioning systems, plumbing, hot water system, electrical, siding trim facia, exterior paint, stairwells, balconies, sidewalks, drives and parking lots, windows, exterior lighting, landscape and irrigation, parking, life support system, pool repair, and elevator service. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $825 $786 $764 $754 $726
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $168,664 of $13,712,560 of assessed valuation with a current yearly tax rate of 1.23%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 1.25% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its S-45 3290 investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 95% and $821, respectively, at December 31, 1998, compared to 94% and $825, respectively, at December 31, 1997. The general partner expects rental rates to improve in the near future as a result of the pending improvements in addition to the property's desirable location. In addition, the general partner noted that it expects to spend approximately $1,217,055 for capital improvements at the property in 1999-2000 to repair and improve the property's HVAC, plumbing, hot water system, electrical, siding, exterior paint, stairwells, balconies, parking lots. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $9,730,882, payable to S-46 3291 FNMA, which bears interest at a rate of 8.38%. The mortgage debt is due in November 2003. Your partnership also has a second mortgage note outstanding of $2,966,882, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $3,648,000 of limited partnership units in 1983 for $9,600 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner for any acts or omissions performed or omitted by any of them in good faith on behalf of your partnership and in a manner reasonably believed by them to be within the scope of the authority granted to them by your partnership's agreement of limited partnership and in the best interests of your partnership if they are not guilty of negligence or willful misconduct with respect to such acts of omissions. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will indemnify the general partners for any act performed by them within the scope of the authority conferred upon them by your partnership's agreement of limited partnership; provided, however, that such indemnity will be payable only if the general partners acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of your partnership and the partners and has no reasonable grounds to believe that their conduct was negligent or unlawful. If a general partner is liable for negligence or misconduct in the performance of its duty to your partnership, it will not be indemnified unless, and only to the extent that, the court in which such action or suit was brought determines that in view of all S-47 3292 the circumstances of the case, despite the adjudication of liability, the general partner is fairly and reasonably entitled to indemnity for those expenses which the court deems proper. Any indemnity will be paid from, and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $9,600. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns no interest in your partnership, including no units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994...................................................... Not available 1995...................................................... $ 3,000 1996...................................................... 3,000 1997...................................................... 2,500 1998...................................................... 24,155
S-48 3293 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1994........................................................ Not available 1995........................................................ $107,406 1996........................................................ 110,013 1997........................................................ 96,770 1998........................................................ 118,622
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 3294 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP --------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, --------------------- --------------------- 1998 1997 1997 1996 --------- --------- --------- --------- IN THOUSANDS, EXCEPT UNIT DATA Cash and Cash Equivalents............................. $ 486 $ 537 $ 578 $ 548 Land & Building....................................... 14,230 13,977 13,992 13,793 Accumulated Depreciation.............................. (7,505) (7,019) (7,141) (6,655) Other Assets.......................................... 346 377 348 401 ------- ------- ------- ------- Total Assets................................ $ 7,557 $ 7,872 $ 7,777 $ 8,087 ======= ======= ======= ======= Notes Payable......................................... $12,833 $12,965 $12,933 $13,057 Other Liabilities..................................... 299 175 178 168 ------- ------- ------- ------- Total Liabilities........................... $13,132 $13,140 $13,111 $13,225 ------- ------- ------- ------- Partners Capital (Deficit)............................ $(5,575) $(5,268) $(5,334) $(5,138) ======= ======= ======= =======
RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP --------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, --------------------- --------------------- 1998 1997 1997 1996 --------- --------- --------- --------- IN THOUSANDS, EXCEPT UNIT DATA Rental Revenue........................................ $ 1,583 $ 1,617 $ 2,168 $ 2,065 Other Income.......................................... 155 125 162 195 ------- ------- ------- ------- Total Revenue............................... $ 1,738 $ 1,742 $ 2,330 $ 2,260 ------- ------- ------- ------- Operating Expenses.................................... $ 638 $ 539 $ 750 $ 688 General & Administrative.............................. 40 50 74 76 Depreciation.......................................... 364 364 486 476 Interest Expense...................................... 752 738 982 1,225 Property Taxes........................................ 127 124 166 165 Other................................................. 57 57 68 89 ------- ------- ------- ------- Total Expenses.............................. $ 1,978 $ 1,872 $ 2,526 $ 2,719 ------- ------- ------- ------- Net income before extraordinary items................. $ (240 $ (130) $ (196) $ (459) Extraordinary items................................... -- -- -- -- ------- ------- ------- ------- Net Income............................................ $ (240) $ (130) $ (196) $ (459) ======= ======= ======= =======
S-50 3295 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership incurred a net loss of $240,765 for the nine months ended September 30, 1998, compared to $129,694 for the nine months ended September 30, 1997. The increase in net loss of $111,071, or 85.64% was primarily the result of increased operating expenses. This factor discussed in more detail in the following paragraph. OPERATING EXPENSES Partnership Property operating expenses, primarily consisting of utilities (net of reimbursements received from tenants), repairs and maintenance, marketing, payroll, and taxes, totaled $823,096 for the nine months ended September 30, 1998, compared to $731,018 for the nine months ended September 30, 1997, an increase of $92,078, or 12.6%. This increase is due to several factors. The increase in repairs and maintenance expenses in the current year was the result of improvements made in the current year. In addition, marketing and advertising costs increased as management more intensively marketed the property in newspapers and periodicals. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net loss of $195,841 for the year ended December 31, 1997, compared to $459,578 for the year December 31, 1996. The decrease in net loss of $263,737, or 57.39% was primarily due to a decrease in interest expense. This factor is discussed in more detail in the following paragraph. INTEREST EXPENSE Interest expense decreased $243,802 (19.9%) as compared to the prior year. This decrease was due to the Partnership refinancing its existing debt in October 1996 at lower interest rates. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $485,939 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-51 3296 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 50 units of your partnership (up to 12.50 units) for consideration per unit of (i) 4.00 Preferred OP Units, (ii) 2.75 Common OP Units, or (iii) $100 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-52 3297 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-53 3298 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-54 3299 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-55 3300 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-56 3301 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-57 3302 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-58 3303 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-59 3304 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-60 3305 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-61 3306 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-62 3307 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-63 3308 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-64 3309 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-65 3310 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-66 3311 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-67 3312 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-68 3313 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Massachusetts law for the as a Delaware limited partnership. The AIMCO purpose of owning and managing Ravensworth Operating Partnership owns interests (either Towers Apartments. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash Flow (as defined in your partner- Operating Partnership's agreement of limited ship's agreement of limited partnership). partnership (the "AIMCO Operating The termination date of your partnership is Partnership Agreement") or as provided by December 31, 2013. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating own and operate of your partnership's Partnership is to conduct any business that property. Subject to restrictions contained may be lawfully conducted by a limited in your partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all act necessary, advisable or convenient nership Act (as amended from time to time, to the business of your partnership or any successor to such statute) (the including borrowing money and creating "Delaware Limited Partnership Act"), liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-69 3314 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 50 Class A units for limited partners and to other persons, and cash and notes to selected persons who to admit such other persons as additional fulfill the requirements set forth in your limited partners, on terms and conditions partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners and no sole discretion. The net capital action or consent is required in connection contribution need not be equal for all OP with the admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership the general partner of contribute funds or other assets to its your partnership may employ themselves or subsidiaries or other persons in which it their affiliates if necessary or has an equity investment,
S-70 3315 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP appropriate to carry out the business and and such persons may borrow funds from the affairs of your partnership and pay such AIMCO Operating Partnership, on terms and fees, expenses, salaries, wages and other conditions established in the sole and compensation to such party as the general absolute discretion of the general partner. partner in its sole discretion determine. To the extent consistent with the business Your partnership's agreement of limited purpose of the AIMCO Operating Partnership partnership also specifies certain contracts and the permitted activities of the general that your partnership will or has entered partner, the AIMCO Operating Partnership may into with the general partner of your transfer assets to joint ventures, limited partnership and certain of their affiliates. liability companies, partnerships, Your partnership is allowed to borrow money corporations, business trusts or other from the general partner and their business entities in which it is or thereby affiliates. becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership may The AIMCO Operating Partnership Agreement borrow money in the name and on behalf of contains no restrictions on borrowings, and your partnership and, as security therefor, the general partner has full power and to mortgage, pledge or otherwise encumber authority to borrow money on behalf of the the assets of your partnership. The general AIMCO Operating Partnership. The AIMCO partner is authorized to execute and Operating Partnership has credit agreements deliver, for and on behalf of your that restrict, among other things, its partnership, such notes and other evidences ability to incur indebtedness. of indebtedness, contracts, agreements, assignments, deeds, leases, loan agree- ments, mortgages and other security instruments and agreements as they deem proper, all on such terms and conditions as they deem proper.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner or written demand with a statement of the its duly authorized representative to have purpose of such demand and at such OP access at all reasonable times to the books Unitholder's own expense, to obtain a of account at the principal office of your current list of the name and last known partnership or at such other place as the business, residence or mailing address of general partner will determine. The general the general partner and each other OP partner is not required to deliver or mail Unitholder. copies of your partnership's certificate of limited partnership or copies of certificates of amendment thereto or cancellation thereof to the limited partners, although such documents are available for review and copying by the limited partners at your partnership's principal office.
S-71 3316 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The overall management and control of the All management powers over the business and business and affairs of your partnership is affairs of the AIMCO Operating Partnership vested solely in the general partner of your are vested in AIMCO-GP, Inc., which is the partnership. The limited partners are not general partner. No OP Unitholder has any permitted to take part in the control of the right to participate in or exercise control business or affairs of your partnership, to or management power over the business and have any voice in the management or affairs of the AIMCO Operating Partner- operation of any partnership's property, to ship. The OP Unitholders have the right to possess the authority or power to act as vote on certain matters described under agent for or on behalf of your partnership "Comparison of Your Units and AIMCO OP or any other partner, to do any act which Units -- Voting Rights" below. The general would be binding on your partnership or any partner may not be removed by the OP other partner nor to incur any expenditure Unitholders with or without cause. on behalf of or with respect to your partnership. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partners of forth in the AIMCO Operating Partnership your partnership and their affiliates will Agreement, the general partner is not liable not incur any liability, responsibility or to the AIMCO Operating Partnership for accountability for damages or otherwise to losses sustained, liabilities incurred or your partnership or any limited partner for benefits not derived as a result of errors any acts or omissions performed or omitted in judgment or mistakes of fact or law of by any of them in good faith on behalf of any act or omission if the general partner your partnership and in a manner reasonably acted in good faith. The AIMCO Operating believed by them to be within the scope of Partnership Agreement provides for the authority granted to them by your indemnification of AIMCO, or any director or partnership's agreement of limited officer of AIMCO (in its capacity as the partnership and in previous
S-72 3317 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP the best interests of your partnership if general partner of the AIMCO Operating they are not guilty of negligence or willful Partnership), the general partner, any misconduct with respect to such acts of officer or director of general partner or omissions. In addition, your partnership the AIMCO Operating Partnership and such will indemnify the general partners for any other persons as the general partner may act performed by them within the scope of designate from and against all losses, the authority conferred upon them by your claims, damages, liabilities, joint or partnership's agreement of limited several, expenses (including legal fees), partnership; provided, however, that such fines, settlements and other amounts indemnity will be payable only if the incurred in connection with any actions general partners acted in good faith and in relating to the operations of the AIMCO a manner they reasonably believed to be in, Operating Partnership, as set forth in the or not opposed to, the best interests of AIMCO Operating Partnership Agreement. The your partnership and the partners and has no Delaware Limited Partnership Act provides reasonable grounds to believe that their that subject to the standards and conduct was negligent or unlawful. If a restrictions, if any, set forth in its general partner is liable for negligence of partnership agreement, a limited partnership misconduct in the performance of its duty to may, and shall have the power to, indemnify your partnership, it will not be indemnified and hold harmless any partner or other unless, and only to the extent that, the person from and against any and all claims court in which such action or suit was and demands whatsoever. It is the position brought determines that in view of all the of the Securities and Exchange Commission circumstances of the case, despite the and certain state securities administrations adjudication of liability, the general that indemnification of directors and partner is fairly and reasonably entitled to officers for liabilities arising under the indemnity for those expenses which the court Securities Act is against public policy and deems proper. Any indemnity will be paid is unenforceable pursuant to Section 14 of from, and only to the extent of, partnership the Securities Act of 1933 and their assets. respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner upon the vote the business and affairs of the AIMCO of the limited partners holding more than Operating Partnership. The general partner 50% of the then outstanding Class A and may not be removed as general partner of the Class B units. A general partner may not AIMCO Operating Partnership by the OP withdraw voluntarily from your partnership Unitholders with or without cause. Under the unless the remaining general partner AIMCO Operating Partnership Agreement, the consents, the granting or denying of which general partner may, in its sole discretion, will be in the remaining general partner's prevent a transferee of an OP Unit from absolute discretion. A limited partner may becoming a substituted limited partner not transfer his interests without the pursuant to the AIMCO Operating Partnership consent of the general partners. Agreement. The general partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended upon without or set forth in the AIMCO Operating Partnership without the con- Agreement,
S-73 3318 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sent of the general partners if such whereby the general partner may, without the proposed amendment is approved by a majority consent of the OP Unitholders, amend the in interest of Class A and Class D limited AIMCO Operating Partnership Agreement, partners and does not in any manner allow amendments to the AIMCO Operating the limited partners to take part in the Partnership Agreement require the consent of control of your partnership's business or the holders of a majority of the outstanding otherwise modify the limited liability of Common OP Units, excluding AIMCO and certain the limited partners, does not extend the other limited exclusions (a "Majority in term of your partnership's agreement of Interest"). Amendments to the AIMCO limited partnership, does not increase the Operating Partnership Agreement may be amount that any limited partner is required proposed by the general partner or by to contribute to the capital of your holders of a Majority in Interest. Following partnership or require such partner to make such proposal, the general partner will a loan to your partnership without such submit any proposed amendment to the OP partners written consent, does not alter the Unitholders. The general partner will seek rights, powers, obligations or duties of the the written consent of the OP Unitholders on general partner without such general the proposed amendment or will call a partner's consent, does not affect the meeting to vote thereon. See "Description of rights, powers or obligations of Class B or OP Units -- Amendment of the AIMCO Operating Class C limited partners and does not alter Partnership Agreement" in the accompanying the amendment provisions. The general part- Prospectus. ners may, without the consent or approval of the limited partners amend your partnership's agreement of limited partnership to (i) add to the duties or obligations of the general partners or surrender any right or power granted to the general partners by your partnership's agreement of limited partnership, (ii) cure any ambiguity, correct or supplement any provision which may be inconsistent with any other provision or to add provisions with respect to matters or questions arising under your partnership's agreement of limited partnership which will not be incon- sistent with any other provisions of your partnership's agreement of limited partnership and (iii) delete or add any provision required to be so deleted or added by applicable securities laws; provided that no such amendment may be made which is adverse to the interests of the limited partners, does not affect the method of allocation of cash distribution or net profits and loses, does not affect the limited liability of the limited partners and the status of your partnership as a partnership for tax purposes.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the
S-74 3319 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, so long as a limited gross negligence, no OP Unitholder has partner does not take part in the control of personal liability for the AIMCO Operating your partnership business, the liability of Partnership's debts and obligations, and such limited partner for the losses, debts liability of the OP Unitholders for the and obligations of your partnership will be AIMCO Operating Partnership's debts and limited to the amounts contributed and obligations is generally limited to the agreed to be contributed by such limited amount of their investment in the AIMCO partnership to the capital of your Operating Partnership. However, the partnership and such limited partner's share limitations on the liability of limited of undistributed net profits; provided, partners for the obligations of a limited however, that under applicable partnership partnership have not been clearly law, a limited partner may be liable to your established in some states. If it were partnership to the extent of previous determined that the AIMCO Operating Part- distributions made it in the event that your nership had been conducting business in any partnership does not have sufficient assets state without compliance with the applicable to discharge its liabilities. limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must devote such time and effort to your generally requires a general partner of a partnership business as may be necessary to Delaware limited partnership to adhere to promote adequately the interests of your fiduciary duty standards under which it owes partnership and the mutual interest of the its limited partners the highest duties of partners. However, the general partner is good faith, fairness and loyalty and which not required to devote substantial time to generally prohibit such general partner from your partnership business and any general taking any action or engaging in any partner may at any time and from time to transaction as to which it has a conflict of time engage in and possess interests in interest. The AIMCO Operating Partnership other business ventures of any and every Agreement expressly authorizes the general type and description, including, without partner to enter into, on behalf of the limitation, the ownership, operation, AIMCO Operating Partnership, a right of financing and management of real estate, first opportunity arrangement and other which may be competitive with your conflict avoidance agreements with various partnership, and neither your partnership affiliates of the AIMCO Operating nor any partner will have any right, title Partnership and the general partner, on such or interest in or to such independent terms as the general partner, in its sole ventures. and absolute discretion, believes are advisable. The AIMCO Operating Partnership In general, your partnership's agreement of Agreement expressly limits the limited
S-75 3320 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership and the AIMCO Operating liability of the general partner by Partnership Agreement have limitations on providing that the general partner, and its the liability of the general partner but officers and directors will not be liable or such limitations differ and provide more accountable in damages to the AIMCO protection for the general partner of the Operating Partnership, the limited partners AIMCO Operating Partnership. or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file
S-76 3321 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the general AIMCO Operating Partnership OP Unitholders have voting partners may not volunta- Agreement, the holders of rights only with respect to rily sell all or the Preferred OP Units will certain limited matters such substantially all of your have the same voting rights as certain amendments and partnership's assets at one as holders of the Common OP termination of the AIMCO time unless not less than Units. See "Description of Operating Partnership sixty days prior to the date OP Units" in the accompany- Agreement and certain of such sale the general ing Prospectus. So long as transactions such as the partners deliver to the any Preferred OP Units are institution of bankruptcy Class A limited partners and outstanding, in addition to proceedings, an assignment Class D limited partners, in any other vote or consent of for the benefit of creditors writing, their intention to partners required by law or and certain transfers by the sell and during the by the AIMCO Operating general partner of its thirty-day period im- Partnership Agreement, the interest in the AIMCO mediately following the affirmative vote or consent Operating Partnership or the giving of such notice, they of holders of at least 50% admission of a successor do not receive written of the general partner. objection to such sale from the Class A and Class D
S-77 3322
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS limited partners who own outstanding Preferred OP more than one-half of the Units will be necessary for Under the AIMCO Operating outstanding Class A and effecting any amendment of Partnership Agreement, the Class D units. Upon a vote any of the provisions of the general partner has the of the majority in interest Partnership Unit Designation power to effect the of the Class A and Class B of the Preferred OP Units acquisition, sale, transfer, limited partners, without that materially and exchange or other the consent of the general adversely affects the rights disposition of any assets of partners, such limited or preferences of the the AIMCO Operating partners may, amend your holders of the Preferred OP Partnership (including, but partnership's agreement of Units. The creation or not limited to, the exercise limited partnership, subject issuance of any class or or grant of any conversion, to certain exceptions, series of partnership units, option, privilege or dissolve your partnership including, without subscription right or any and remove any of the limitation, any partner- other right available in general partners. ship units that may have connection with any assets rights senior or superior to at any time held by the A general partner may cause the Preferred OP Units, AIMCO Operating Partnership) the dissolution of your shall not be deemed to or the merger, partnership by retiring. materially adversely affect consolidation, Your partnership may then be the rights or preferences of reorganization or other continued by the remaining the holders of Preferred OP combination of the AIMCO general partner or, if no Units. With respect to the Operating Partnership with general partner remains, the exercise of the above or into another entity, all Class A and Class D limited described voting rights, without the consent of the partners may elect to each Preferred OP Units OP Unitholders. continue your partner- shall have one (1) vote per ship's business by unanimous Preferred OP Unit. The general partner may consent within ninety days cause the dissolution of the after the retirement of the AIMCO Operating Partnership general partner. by an "event of withdrawal," as defined in the Delaware In general, you have greater Limited Partnership Act voting rights in your (including, without limi- partnership than you will tation, bankruptcy), unless, have as an OP Unitholder. OP within 90 days after the Unitholders cannot remove withdrawal, holders of a the general partner of the "majority in interest," as AIMCO Operating Partnership. defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the
S-78 3323 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash Flow at the rate of $0.50 per or such portion as the (as defined in your Preferred OP Unit; provided, general partner may in its partnership's agreement of however, that at any time sole and absolute discretion limited partnership) are to and from time to time on or determine, of Available Cash be made within ninety days after the fifth anniversary (as defined in the AIMCO after the end of each year. of the issue date of the Operating Partnership The distributions payable to Preferred OP Units, the Agreement) generated by the the partners are not fixed AIMCO Operating Partnership AIMCO Operating Partnership in amount and depend upon may adjust the annual during such quarter to the the operating results and distribution rate on the general partner, the special net sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special limited partner original issue. Holders of and holders of Common OP Preferred OP Units will not Units with respect to be entitled to receive any distributions of Available distributions in excess of Cash, distributions upon cumulative distributions on liquidation or other the Preferred OP Units. No distributions. See "Per interest, or sum of money in Share and Per Unit Data" in lieu of interest, shall be the accompanying Prospectus. payable in respect of any distribution payment or pay- The general partner in its ments on the Preferred OP sole and absolute discretion Units that may be in may distribute to the OP arrears. Unitholders Available Cash on a more frequent basis and When distributions are not provide for an appropriate paid in full upon the record date. Preferred OP Units or any Parity Units (as defined The AIMCO Operating Partner- below), all distributions ship Agreement requires the declared upon the Preferred general partner to take such OP Units and any Parity reasonable efforts, as Units shall be declared determined by ratably in proportion to the respective amounts of distributions accumulated, ac-
S-79 3324 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS crued and unpaid on the Pre- it in its sole and absolute ferred OP Units and such discretion and consistent Parity Units. Unless full with AIMCO's qualification cumulative distributions on as a REIT, to cause the the Preferred OP Units have AIMCO Operating Partnership been declared and paid, to distribute sufficient except in limited circum- amounts to enable the stances, no distributions general partner to transfer may be declared or paid or funds to AIMCO and enable set apart for payment by the AIMCO to pay stockholder AIMCO Operating Partnership dividends that will (i) and no other distribution of satisfy the requirements for cash or other property may qualifying as a REIT under be declared or made, the Code and the Treasury directly or indirectly, by Regulations and (ii) avoid the AIMCO Operating any Federal income or excise Partnership with respect to tax liability of AIMCO. See any Junior Units (as de- "Description of OP fined below), nor shall any Units -- Distributions" in Junior Units be redeemed, the accompanying Prospectus. purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person if: (1) the general and the Preferred OP Units Operating Partnership partners consent, the are not listed on any Agreement restricts the granting of which will be in securities exchange. The transferability of the OP the general partners' Preferred OP Units are Units. Until the expiration absolute discretion, (2) the subject to restrictions on of one year from the date on transfer, in the opinion of transfer as set forth in the which an OP Unitholder your partnership's counsel, AIMCO Operating Partnership acquired OP Units, subject does not result in a Agreement. to certain exceptions, such termination of your OP Unitholder may not partnership for tax Pursuant to the AIMCO transfer all or any por- purposes, (3) the transferee Operating Partnership tion of its OP Units to any did not own any interest in Agreement, until the transferee without the your partnership's property expiration of one year from consent of the general or in an entity which owned the date on which a holder partner, which consent may any interest in your part- of Preferred OP Units be withheld in its sole and nership's property in 1980 acquired Preferred OP Units, absolute discretion. After and (4) the transfer, in the subject to certain the expiration of one year, opinion of counsel to your exceptions, such holder of such OP Unitholder has the partnership, may be effected Preferred OP Units may not right to transfer all or any without registration under transfer all or any portion portion of its OP Units to applicable securities laws. of its Preferred OP Units to any person, subject to the A transferee may become a any transferee without the satisfaction of certain con- substitute partner if, in consent of the general ditions specified in the addition to the foregoing partner, which consent may AIMCO Operating Partnership conditions: (1) the assignor be withheld in its sole and Agreement, including the gives the assignee such absolute discretion. After general partner's right of right, (2) the assignee pays the expiration of one year, first refusal. See the costs and expenses such holders incurred in
S-80 3325 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS connection with such of Preferred OP Units has "Description of OP Units -- substitution and (3) the the right to transfer all or Transfers and Withdrawals" assignee fulfills such other any portion of its Preferred in the accompanying conditions as may be re- OP Units to any person, Prospectus. quired by the general subject to the satisfaction partner. of certain conditions After the first anniversary There are no redemption specified in the AIMCO of becoming a holder of rights associated with your Operating Partnership Common OP Units, an OP units. Agreement, including the Unitholder has the right, general partner's right of subject to the terms and first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-81 3326 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-82 3327 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-83 3328 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-84 3329 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-85 3330 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-86 3331 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-87 3332 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-88 3333 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-89 3334 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-90 3335 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $3,000 in 1996, $2,500 in 1997 and $24,155 in 1998. The property manager received management fees of $110,013 in 1996, $96,770 in 1997 and $118,622 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-91 3336 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,250 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-92 3337 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Ravensworth Associates Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Barry S. Fishman & Assoc., independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-93 3338 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS
PAGE ---- Accountants' Compilation Report............................. F-2 Balance Sheet as of September 30, 1998 and 1997 (Unaudited)............................................... F-3 Statement of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................. F-4 Statements of Changes in Partners' Capital Deficit for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-5 Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-6 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Changes in Partners' Capital Deficit for the years ended December 31, 1997 and 1996.................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to the Financial Statements........................... F-13
F-1 3339 ACCOUNTANTS' COMPILATION REPORT To the Partners of Ravensworth Associates Limited Partnership We have compiled the accompanying balance sheets of Ravensworth Associates Limited Partnership as of September 30, 1998 and 1997, and the related statements of operations, changes in partners' capital deficit and cash flows for the nine months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Partnership's financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. /s/ BARRY FISHMAN & ASSOCIATES, CHARTERED January 20, 1999 F-2 3340 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997 ASSETS
1998 1997 ----------- ----------- Real estate, at cost Land...................................................... $ 1,000,000 $ 1,000,000 Building, improvements and equipment, less accumulated depreciation of $7,504,715 and $7,019,244, respectively........................................... 5,724,975 5,958,126 Cash........................................................ 485,939 536,753 Tenant accounts receivable.................................. 2,196 899 Mortgage escrow deposits.................................... 52,612 54,264 Prepaid expenses............................................ 27,949 4,930 Deferred costs, net of accumulated amortization of $99,284 and $47,483, respectively................................. 263,322 317,474 ----------- ----------- $ 7,556,993 $ 7,872,446 =========== =========== LIABILITIES AND PARTNERS' CAPITAL DEFICIT Liabilities Notes payable............................................. $12,832,583 $12,964,814 Accounts payable and accrued expenses..................... 163,322 61,153 Accrued interest expense.................................. 88,636 82,085 Prepaid rent.............................................. 15,013 2,945 Tenant security deposits.................................... 32,401 29,499 ----------- ----------- Total liabilities................................. 13,131,955 13,140,496 Partners' capital deficit................................... (5,574,962) (5,268,050) ----------- ----------- $ 7,556,993 $ 7,872,446 =========== ===========
See accountants' compilation report. F-3 3341 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ---------- ---------- REVENUE Rental.................................................... $1,582,590 $1,617,390 Interest.................................................. 12,618 14,915 Other income.............................................. 142,307 109,848 ---------- ---------- Total revenue..................................... 1,737,515 1,742,153 ---------- ---------- OPERATING EXPENSES Administrative and office expenses........................ 39,883 49,823 Insurance................................................. 26,231 23,568 Professional fees......................................... 9,689 10,805 Management fees........................................... 90,362 87,292 Marketing................................................. 53,780 34,342 Payroll costs............................................. 159,006 141,180 Taxes -- real estate...................................... 126,498 124,097 Other taxes and licenses.................................. 7,148 5,829 Repairs and maintenance................................... 119,438 70,170 Utilities................................................. 191,061 183,912 ---------- ---------- Total operating expenses.......................... 823,096 731,018 OTHER EXPENSES Interest.................................................. 752,234 737,867 Depreciation.............................................. 364,100 364,112 Amortization.............................................. 38,850 38,850 ---------- ---------- Total other expenses.............................. 1,155,184 1,140,829 ---------- ---------- Total expenses.................................... 1,978,280 1,871,847 ---------- ---------- Net loss.................................................... $ (240,765) $ (129,694) ========== ==========
See accountants' compilation report. F-4 3342 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ----------- ----------- Partners' capital deficit, January 1,....................... $(5,334,197) $(5,138,356) Net loss for the nine months ended September 30,............ (240,765) (129,694) ----------- ----------- Partners' capital deficit, September 30,.................... $(5,574,962) $(5,268,050) =========== ===========
See accountants' compilation report. F-5 3343 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 --------- --------- Cash flows from operating activities Net loss.................................................. $(240,765) $(129,694) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation........................................... 364,100 364,112 Amortization........................................... 38,850 38,850 (Increase) decrease in receivables..................... (909) 1,661 (Increase) in mortgage escrow.......................... (39,825) (40,561) (Increase) in other assets............................. (25,634) (4,430) Increase in accounts payable, accrued expenses and prepaid rent.......................................... 117,174 8,673 Decrease (increase) in tenants' security deposits, net................................................... 3,500 (1,097) --------- --------- Net cash provided by operating activities......... 216,491 237,514 --------- --------- Cash flows from investing activities Improvements to property.................................. (237,374) (184,435) Increase in deferred costs................................ -- (2,353) --------- --------- Net cash (used in) investing activities........... (237,374) (186,788) --------- --------- Cash flows from financing activities Repayment of notes payable................................ (100,200) (92,178) --------- --------- Net cash (used in) financing activities........... (100,200) (92,178) --------- --------- Net (decrease) in cash and cash equivalents................. (121,083) (41,452) Cash and cash equivalents, January 1, ...................... 607,022 578,205 --------- --------- Cash and cash equivalents, September 30, ................... $ 485,939 $ 536,753 ========= ========= Supplemental cash flow information: Interest paid............................................. $ 744,816 $ 734,982 ========= =========
See accountants' compilation report. F-6 3344 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 F-7 3345 INDEPENDENT AUDITORS' REPORT To the Partners of Ravensworth Associates Limited Partnership We have audited the accompanying balance sheets of Ravensworth Associates Limited Partnership as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' capital deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ravensworth Associates Limited Partnership as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ BARRY S. FISHMAN & ASSOCIATES, CHARTERED December 21, 1998 F-8 3346 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 ----------- ----------- Real estate, at cost Land...................................................... $ 1,000,000 $ 1,000,000 Building, improvements and equipment, less accumulated depreciation of $7,140,615 and $6,655,132, respectively........................................... 5,851,703 6,137,802 Cash........................................................ 578,121 547,609 Tenant accounts receivable.................................. 1,287 2,560 Mortgage escrow deposits.................................... 12,787 13,704 Other receivables........................................... 2,315 500 Tenant security deposits -- funded.......................... 28,901 30,596 Deferred costs, net of accumulated amortization of $60,434 and $8,633, respectively.................................. 302,170 353,971 ----------- ----------- $ 7,777,284 $ 8,086,742 =========== =========== LIABILITIES AND PARTNERS' CAPITAL DEFICIT Liabilities Notes payable............................................. $12,932,783 $13,056,992 Accounts payable.......................................... 9,382 18,132 Accrued interest expense.................................. 81,218 79,200 Other accrued expenses.................................... 56,489 38,789 Prepaid rent.............................................. 2,708 1,389 Tenant security deposits.................................. 28,901 30,596 ----------- ----------- Total liabilities................................. 13,111,481 13,225,098 Partners' capital deficit......................... (5,334,197) (5,138,356) ----------- ----------- $ 7,777,284 $ 8,086,742 =========== ===========
See accompanying notes. F-9 3347 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 30, 1997 AND 1996
1997 1996 ---------- ---------- REVENUE Rental.................................................... $2,168,322 $2,064,880 Interest.................................................. 19,179 36,603 Other income.............................................. 143,205 158,012 ---------- ---------- Total revenue..................................... 2,330,706 2,259,495 ---------- ---------- OPERATING EXPENSES Administrative and office expenses........................ 73,441 75,718 Insurance................................................. 34,551 33,206 Professional fees......................................... 11,498 10,275 Management fees........................................... 119,689 110,013 Marketing................................................. 45,675 29,181 Payroll costs............................................. 187,976 171,195 Taxes -- real estate...................................... 166,255 164,512 Other taxes and licenses.................................. 5,728 6,628 Repairs and maintenance................................... 97,259 89,482 Utilities................................................. 265,677 256,423 ---------- ---------- Total operating expenses.......................... 1,007,749 946,633 ---------- ---------- OTHER EXPENSES Interest.................................................. 981,514 1,225,316 Depreciation.............................................. 485,483 476,491 Amortization.............................................. 51,801 70,633 ---------- ---------- Total other expenses.............................. 1,518,798 1,772,440 ---------- ---------- Total expenses.................................... 2,526,547 2,719,073 ---------- ---------- Net loss.................................................... $ (195,841) $ (459,578) ========== ==========
See accompanying notes. F-10 3348 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Partners' capital deficit, December 31, 1995................ $(4,678,778) Net loss for the year ended December 31, 1996............... (459,578) ----------- Partners' capital deficit, December 31, 1996................ (5,138,356) Net loss for the year ended December 31, 1997............... (195,841) ----------- Partners' capital deficit, December 31, 1997................ $(5,334,197) ===========
See accompanying notes. F-11 3349 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- ------------ Cash flows from operating activities Net loss.................................................. $(195,841) $ (459,578) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation........................................... 485,483 476,491 Amortization........................................... 51,801 70,634 (Increase) in receivables.............................. (542) (5,694) Decrease in mortgage escrow............................ 917 -- Increase (decrease) in accounts payable, accrued expenses and prepaid rent............................. 12,287 (1,872,700) Decrease in tenants' security deposits, net............ -- (51,756) --------- ------------ Net cash provided by (used in) operating activities...................................... 354,105 (1,842,603) --------- ------------ Cash flows from investing activities Improvements to property.................................. (199,384) (83,362) Increase in deferred costs................................ -- (362,605) --------- ------------ Net cash (used in) investing activities........... (199,384) (445,967) --------- ------------ Cash flows from financing activities Borrowing of notes payable................................ -- 12,966,882 Repayment of notes payable................................ (124,209) (9,890) Payoff of notes payable................................... -- (11,000,000) --------- ------------ Net cash provided by (used in) financing activities...................................... (124,209) 1,956,992 --------- ------------ Net increase (decrease) in cash and cash equivalents........ 30,512 (331,578) Cash and cash equivalents, beginning........................ 547,609 879,187 --------- ------------ Cash and cash equivalents, end.............................. $ 578,121 $ 547,609 ========= ============ Supplemental cash flow information: Interest paid............................................. $ 979,496 $ 3,112,998 ========= ============
See accompanying notes. F-12 3350 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 1. ORGANIZATION Ravensworth Associates Limited Partnership (the "Partnership"), a Massachusetts limited partnership, was organized on July 5, 1983 to acquire, own and operate a nine-story residential apartment complex known as Ravensworth Towers Apartments (the "Property"), located in Annandale, Virginia. The Property consists of approximately six acres of land, 219 apartment units, 350 outdoor parking spaces, an outdoor swimming pool and other recreational facilities. Stephen A. Goldberg ("Goldberg") and Winthrop Northeast Properties, Inc. ("Winthrop Northeast") are the General Partners. Joseph R. Schuble is the Class B Limited Partner and Linnaeus-Phoenix Associates Limited Partnership ("Linnaeus") is the Class C Limited Partner. The Partnership received $400 of capital contributions from the General Partners and the Class B and C Limited Partners. Investor Limited Partners purchased 50 Units of Limited Partnership Interest at $72,960 per Unit. Pursuant to approval of a Recapitalization Proposal by a majority of Class A Limited Partners, Class D Limited Partners were admitted into the Partnership on November 30, 1987. The capital contributions of the Class D Limited Partners totaled $750,000 (of which $705,000 was contributed by Winthrop Northeast) and is being held in a working capital account. The terms of the Class D Units include a special allocation of the first $750,000 of tax losses, a 40% interest in profits and losses thereafter and a 40% interest in cash flow and sale or refinancing proceeds. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared in accordance with generally accepted accounting principles. Depreciation Depreciation is calculated generally by the straight line method for real property, and accelerated methods for equipment over the estimated useful lives of the related assets. Amortization Loan costs are being amortized on a straight-line basis over the term of the loan. Income Taxes No provision for income taxes is reflected in the accompanying financial statements of the Partnership. Partners are required to report on their individual income tax return their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership's income tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are subject to varying interpretations under Federal and state income tax laws and regulations, an examination of the Partnership's income tax returns may lead to adjustments to the amounts reported in the accompanying financial statements. The accompanying financial statements are prepared on a basis of accounting which is different than the accounting basis used in the preparation of Partnership income tax returns. As a result, financial statement net loss from operations is less than the net loss reported on Partnership income tax returns. Also, financial statement accumulated depreciation is less than income tax return accumulated depreciation. The differences are due primarily to the calculation of depreciation expense using certain methods and asset lives for income F-13 3351 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) tax purposes which are methods and lives that are not in conformity with generally accepted accounting principles. The differences are as follows:
1997 1996 ----------- ----------- Financial statement net loss............................... $ (195,841) $ (459,578) Depreciation adjustment.................................... (152,714) (152,714) ----------- ----------- Income tax return net loss................................. $ (348,555) $ (612,292) =========== =========== Financial statement accumulated depreciation............... $ 7,140,615 $ 6,655,132 Cumulative adjustments..................................... 5,097,249 4,944,535 ----------- ----------- Income tax return accumulated depreciation................. $12,237,864 $11,599,667 =========== ===========
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents The Partnership considers all highly liquid instruments with an initial maturity of six months or less to be cash equivalents for purposes of the statement of cash flows. Accounts Receivable Management considers all accounts receivable to be collectible. 3. CONCENTRATION OF RISK During the year, the Partnership, at times, maintained cash balances in excess of the federally insured maximum of $100,000. Management does not consider the risk to be significant. 4. BUILDING, IMPROVEMENTS AND EQUIPMENT The following schedule summarizes building, improvements and equipment at December 31, 1997 and 1996.
RECOVERY PERIOD 1997 1996 - --------------- ----------- ----------- Building and improvements................................. $11,850,662 $11,735,337 Equipment................................................. 1,141,656 1,057,597 ----------- ----------- 12,992,318 12,792,934 Accumulated depreciation.................................. (7,140,615) (6,655,132) ----------- ----------- $ 5,851,703 $ 6,137,802 =========== ===========
5. NOTES PAYABLE Mortgage Notes In October 1996, the Partnership refinanced its existing debt. The Partnership paid off by means of new financing an $11,000,000 purchase money mortgage note along with accrued interest of $1,966,882. The new F-14 3352 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) financing arrangement consists of a $10,000,000 first mortgage note payable and a $2,966,882 second mortgage note payable. The Partnership incurred loan costs of $362,605. The first mortgage note payable to John Hancock Variable Life Insurance Company bears interest at 8.375% with monthly installments of interest and principal in the amount of $79,682. The loan matures on November 1, 2003. The principal balances at December 31, 1997 and 1996 amounted to $9,865,901 and $9,990,110 respectively. Principal payments for the next five years are as follows:
DECEMBER 31, - ------------ 1998.................................................... $135,020 1999.................................................... 146,773 2000.................................................... 159,549 2001.................................................... 173,435 2002.................................................... 188,531
The second mortgage note payable to Goldberg bears interest at 5% through July 31, 1998 and at 8% until maturity on November 1, 2003. Note Payable to Partner Goldberg has advanced $100,000 to the Partnership. The loan is non-interest bearing and is unsecured. The loan is payable prior to any distributions to any partners of net cash flow, sale or financing proceeds or proceeds upon liquidation of the Partnership. 6. RELATED PARTY TRANSACTIONS Winthrop Northeast, Winthrop Financial Co., Inc. ("Winthrop Financial") and Winthrop Securities Co., Inc. ("Winthrop Securities"), the Selling Agent, are wholly-owned subsidiaries of First Winthrop Corporation ("First Winthrop") which in turn is a wholly-owned subsidiary of Winthrop Financial Associates, A Limited Partnership. Linnaeus, the Class C Limited Partner, is a limited partnership whose general partners are directors of First Winthrop. Winthrop Northeast was paid asset management fees of $2,500 and $3,000 for the years ended December 31, 1997 and 1996 respectively. Winthrop Management, an affiliate of Winthrop Northeast, was paid a management fee at 5% of the gross receipts for the management of the Property. Fees under this agreement totaled $96,770 and $110,013 for the years ended December 31, 1997 and 1996 respectively. Effective October 28, 1997, the Partnership engaged Insignia Residential Group, L.P. to manage the property at the rate of 5% of gross revenues. Fees under this agreement amounted to $19,919. Insignia Residential Group, L.P. is a related party through an affiliation with Winthrop Northeast. F-15 3353 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted, into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 3354 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 3355 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 3356 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3357 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3358 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3359 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3360 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3361 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3362 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3363 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3364 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3365 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3366 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3367 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3368 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3369 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3370 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3371 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3372 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3373 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3374 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3375 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3376 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3377 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3378 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3379 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3380
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3381 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3382
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3383 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3384 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3385 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3386
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3387 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3388 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3389 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3390
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3391 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3392 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3393 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3394 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3395 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3396 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3397 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3398 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3399 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3400 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3401 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3402 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3403 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Ravensworth Associates L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Ravensworth Associates L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $100 in cash, or 2.75 Common OP Units of the Purchaser, or 4 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 31, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3404 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3405 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3406 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3407
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3408
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3409
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3410
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3411 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3412 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Rivercreek Apartments Limited Partnership in exchange for your choice of: 959 of our 8.0% Class Two Partnership Preferred Units; 619.75 of our Partnership Common Units; or $23,971 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $23,971 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3413 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Rivercreek Apartments Limited Partnership............. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-46 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF RIVERCREEK APARTMENTS LIMITED PARTNERSHIP............... S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58
i 3414
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-58 Prorations................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3415 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Corporation and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In April, 1996, an independent appraiser valued the property on an unencumbered basis to be $4,900,000. We estimate your property to be worth $4,500,000, less approximately $217,588 of deferred maintenance and investment. Therefore, it is possible, that the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. S-1 3416 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3417 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2019 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $1,918 per year on the number of Preferred OP Units, or distributions of $1,556.88 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 3418 partnership's units. During 1998, your partnership paid cash distributions of $15,166.67 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 3419 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,469,000 of balloon payments due on its mortgage debt in January, 2008. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. S-5 3420 On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in January, 2008 and require balloon payments of $2,469,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 3421 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $15,166.67 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,918 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $15,166.67 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,549.38 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the S-7 3422 Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3423 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income since December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.45% per annum, which resulted in an increase from the initial capitalization rate of 0%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate upward by approximately 0.91%, resulting in a final capitalization rate of 9.34%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 420,000 Capitalization rate......................................... 9.34% ----------- Gross valuation of partnership property..................... 4,500,000 Plus: Cash and cash equivalents............................. 144,040 Plus: Other partnership assets, net of security deposits.... 283,789 Less: Mortgage debt, including accrued interest............. (3,800,000) Less: Accounts payable and accrued expenses................. (18,569) Less: Other liabilities..................................... (22,055) ----------- Partnership valuation before taxes and certain costs........ 1,087,205 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (217,588) Less: Closing costs......................................... (150,500) ----------- Estimates net valuation of your partnership................. 719,117 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 719,117 Total number of units............................. 30.0 ----------- Estimated valuation per unit................................ 23,971 =========== Cash consideration per unit................................. $ 23,971 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $23,971 by the $25 liquidation preference of each Preferred OP Unit to get 959 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $23,971 by a price of $38.69 to get 619.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 3424 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; - the net book value of your partnership; and - recent appraisals for the property for $4,900,000, which appraisals did not take into account the mortgages, other assets and liabilities, costs of sale of the property and over $217,588 of deferred maintenance of the property. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 23,971 Partnership Preferred Units................................. $ 23,971 Partnership Common Units.................................... $ 23,971 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 23,971 Estimated going concern value............................. $ 19,929 Net book value (deficit).................................. $(41,467)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 3425 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Rivercreek Apartments Limited Partnership is a South Carolina limited partnership which was formed on December 27, 1979 for the purpose of owning and operating a single apartment property located in Augusta, Georgia, known as "Rivercreek Apartments." Rivercreek Apartments consists of 234 units and was built in 1980. Your partnership has no employees. As of September 30, 1998, there were 30 units of limited partnership interest issued and outstanding, which were held of record by 31 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,560,000 of limited partnership units in 1979. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $15,166.67 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2019, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,469,000, payable to MBL Life Assurance Corp., which bears interest at the rate of 7.25%. The mortgage debt is due on January 1, 2008. Your partnership's agreement of limited partnership does allow your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 3426 THE OFFER In exchange for each of your units, we are offering you a choice of: - 959 of our Class Two Partnership Preferred Units; - 619.75 of our Partnership Common Units; or - $23,971 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 30 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 959 Preferred OP Units, 619.75 Common OP Units, or $23,971 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 3427 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 3428 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $23,971 in cash, 959 Preferred OP Units or 619.75 Common OP Units. Both your units and the OP Units are S-14 3429 subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $23,971. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $8,500 for the fiscal year ended December 31, 1998. The property manager received management fees of $57,074 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $179,783 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 3430 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 3431
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 3432 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 3433
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 3434 SUMMARY FINANCIAL INFORMATION OF RIVERCREEK APARTMENTS LIMITED PARTNERSHIP The summary financial information of Rivercreek Apartments Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Rivercreek Apartments Limited Partnership for the year ended December 31, 1997 is based on audited financial statements and for the year ended December 31, 1996 is based on unaudited financial statements. The summary financial information for 1995, 1994 and 1993 is based on unaudited information which is not included in the Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." RIVERCREEK APARTMENTS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues......................... $ 838 $ 832 $ 1,145 $ 1,159 $ 1,151 $ 1,154 $ 1,095 Net Income/(Loss)...................... $ 126 $ (20) $ (164) $ (48) $ 2 $ (40) $ (62) Net Income per limited partnership unit................................. $ 4,024 $ (639) $ (5,229) $ (1,548) $ 53 $ (1,264) $ (1,980) Distributions per limited partnership unit................................. $14,539.17 -- -- $ 64.52 -- -- -- Distributions per limited partnership unit (which represent a return of capital)............................. $14,539.17 -- -- $ 64.52 -- -- --
SEPTEMBER 30, DECEMBER 31, --------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents.............. $ 280 $ 74 $ 599 $ 157 $ 310 $ 320 $ 233 Real Estate, Net of Accumulated Depreciation......................... $ 1,683 $ 1,722 $ 1,731 $ 1,727 $ 1,675 $ 1,711 $ 1,843 Total Assets........................... $ 2,223 $ 1,943 $ 2,534 $ 1,981 $ 2,031 $ 2,069 $ 2,112 Notes Payable.......................... $ 3,776 $ 3,011 $ 3,800 $ 3,032 $ 3,058 $ 3,081 $ 3,101 General Partners' Capital/(Deficit).... $ 5 $ 8 $ 8 $ 10 $ 10 $ 10 $ 10 Limited Partners' Capital/(Deficit).... $ (1,651) $ (1,182) $ (1,325) $ (1,163) $ (1,113) $ (1,115) $ (1,075) Partners' Deficit...................... $ (1,646) $ (1,174) $ (1,317) $ (1,153) $ (1,103) $ (1,105) $ (1,065) Total Distributions.................... $ 455 $ -- $ -- $ 2 $ -- $ -- $ -- Book value per limited partnership unit................................. $ (53,258) $(38,129) $(42,754) $(37,516) $(35,903) $(35,968) $(34,677) Net increase (decrease) in cash and cash equivalents..................... $ (319) $ (83) $ 442 $ (153) $ (10) $ 87 $ 22 Net cash provided by operating activities........................... $ 256 $ 29 $ 11 $ 83 $ 187 $ 152 $ 120 Ratio of earnings to fixed charges..... 1.67/1 0.92/1 0.82/1 0.85/1 1.01/1 0.88/1 0.83/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
RIVERCREEK AIMCO APARTMENTS OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $1,549.38 $15,166.67 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $1,918.00 $15,166.67
S-20 3435 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 3436 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In April, 1996, an independent appraiser valued the properties on an unencumbered basis to be $4,900,000. We estimate your property to be worth $4,500,000 less approximately $217,588 of deferred maintenance and investment. Therefore, it is possible that the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could S-22 3437 be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 3438 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2019 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 3439 is equivalent to distributions of $1,918 per year on the number of Preferred OP Units, or distributions of $1,556.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $15,166.67 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 3440 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,469,000 of balloon payments due on its mortgage debt in January, 2008. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 3441 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 23% interest, consisting of a 0% limited partnership interest and a 23% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 3442 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 3443 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $(20,000) for the nine months ended September 30, 1997, to $126,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on January 1, 2008 and require balloon payments totaling $2,469,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2008 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only S-29 3444 Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's assets could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 3445 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $15,166.67 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,918 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $15,166.67 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,549.38 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 3446 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.45% per annum, which resulted in an increase from the initial capitalization rate of 0%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate upward by approximately 0.91%, resulting in a final capitalization rate of 9.34%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 3447 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $420,226 9.34% $4,500,000
- --------------- (1) The total net operating income is equal to total revenues of $1,128,567, less total expenses of $641,141 and recurring replacement costs of $67,200. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $719,117. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 420,000 Capitalization rate......................................... 9.34% ----------- Gross valuation of partnership property..................... 4,500,000 Plus: Cash and cash equivalents............................. 144,040 Plus: Other partnership assets, net of security deposits.... 283,789 Less: Mortgage debt, including accrued interest............. (3,800,000) Less: Accounts payable and accrued expenses................. (18,569) Less: Other liabilities..................................... (22,055) ----------- Partnership valuation before taxes and certain costs........ 1,087,205 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (217,588) Less: Closing costs......................................... (150,500) Estimates net valuation of your partnership................. 719,117 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% Estimated net valuation of units............................ 719,117 Total number of units............................. 30.0 Estimated valuation per unit................................ 23,971 =========== Cash consideration per unit................................. $ 23,971 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $23,971 by the $25 liquidation preference of each Preferred OP Unit to get 959 Preferred OP Units per unit. S-33 3448 - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $23,971 by a price of $38.69 to get 619.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $719,117 or .13% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from a net loss of $(20,000) for the nine months ended September 30, 1997 to $126,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. S-34 3449 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $23,971, based on a total estimated value of your partnership's property of $4,500,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $1,918 per year on the number of Preferred OP Units, or distributions of $1,549.38 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $15,166.67 per unit. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive S-35 3450 if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 3451 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2019, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 23,971 Partnership preferred units................................. 23,971(1) Partnership common units.................................... 23,971(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 23,971 Estimated going concern value............................. $ 19,929 Net book value (deficit).................................. $(41,467)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 3452 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 35%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the property and the actual amounts for which the partnership's property or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $19,929 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book (deficit) per unit is ($41,467) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $20,367 per unit, going concern value of $19,818 per unit and liquidation value of $16,650 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 3453 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated.] For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents discounts to the offer price of $(3,604), $(4,153) and $(7,321). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and S-39 3454 analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; [(ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property;] (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
RIVERCREEK ---------- Total Revenues.............................................. $1,230,915 Operating Expenses.......................................... (623,555) Replacement Reserves -- Net................................. (105,570) Debt Service................................................ (317,282) Capital Expenditures........................................ (45,800) ---------- Net Cash Flow..................................... $ 138,708 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget S-40 3455 are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rates of 9.34%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and [(iii) extraordinary capital expenditure estimates in the amount of $217,588. and a debt assumption fee of $38,000. Stanger S-41 3456 observed that your partnership liquidation value of $719,117 was divided by the total units outstanding of 30 to provide the liquidation value per unit of $2,397. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $420,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $20,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 9.84%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 35%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of approximately 12%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 30 to achieve management's estimate of going concern value of $19,929 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $23,971 per unit is equal to management's estimate of liquidation value, and reflects a 20% premium to management's estimate of going concern value of $19,929. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. S-42 3457 In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 35% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 35% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (of 12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately more than 80% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $20,367, $19,818, and $16,650 representing (discounts) to the offer price of (15)%, (17)%, and (30)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the S-43 3458 partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 3459 YOUR PARTNERSHIP GENERAL Rivercreek Apartments Limited Partnership, is a South Carolina limited partnership which completed a private offering in 1979. Insignia acquired the general partner of your partnership in December, 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 31 limited partners of your partnership and a total of 30 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 27, 1979 for the purpose of owning an apartment property located in Augusta, Georgia, known as "Rivercreek Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1980 and consists of 234 apartment units. There are 112 one-bedroom apartments and 122 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 91% in 1998, 92% in 1997 and 92% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $217,588 and are intended to be paid for out of cash flow or borrowings. Major renovation items include roofing, siding, landscaping and irrigation, drainage, and tennis court repairs. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $403 $396 $402 $405 $376
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $47,432 of $1,680,800 of assessed valuation with a current yearly tax rate of 2.82%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 2.88% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2019 unless earlier dissolved. Your S-45 3460 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 91% and $396, respectively, at December 31, 1998, compared to 92% and $403, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects rental rates to improve in the near future because strengthening rental market. In addition, the general partner noted that it expects to spend approximately $217,588 for capital improvements at the property in 1999 to repair and improve the property's landscaping and irrigation, drainage, tennis court, siding and roofing. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,766,389, payable to MBL Life Assurance Corp., which bears interest at a rate of 7.25%. The mortgage debt is due on January, 2008. S-46 3461 Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,560,000 of limited partnership units in 1979 for $31,200 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2019, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners are not liable to your partnership or the limited partners because any taxing authorities disallow or adjust any deductions or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will also indemnify the general partners and their affiliates against any loss, expense, liability, action, or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership if any court determines that such conduct merits indemnity. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 3462 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $31,200.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 $0 $0 $ 0 1994.................................. 0 0 0 0 1995.................................. 31 0 0 233 1996.................................. 67 0 0 500 1997.................................. 0 0 0 1998.................................. 15,167 0 0 113,750 ------- -- -- -------- Total....................... $15,265 $0 $0 $114,483 ======= == == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows: RIVERCREEK TRANSFER HISTORY
NUMBER UNITS % OF TOTAL NUMBER YEAR TRANSFERRED UNITS TRANSACTIONS ---- ------------ ---------- ------------ 1995..................................... 1 3.33333% 1 1996..................................... 0 0% 0 1997..................................... 0 0% 0 1998..................................... 0 0% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 23% interest in your partnership, including the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 3463 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $12,576 1995........................................................ 6,732 1996........................................................ 17 1997........................................................ 15,009 1998........................................................ 8,500
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $57,055 1996........................................................ 57,000 1997........................................................ 56,000 1998........................................................ 57,074
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 3464 SELECTED FINANCIAL INFORMATION OF RIVERCREEK APARTMENTS LIMITED PARTNERSHIP Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Rivercreek Apartments Limited Partnership taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from financial information which is not included in this Prospectus Supplement. See "Index to Financial Statements."
SEPTEMBER 30, DECEMBER 31, --------------------- ----------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- -------- ---------- ---------- ------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents.......... $ 280 $ 74 $ 599 $ 157 $ 310 $ 320 $ 233 Land & Building.................... 4,735 4,628 4,674 4,524 4,336 4,187 4,129 Accumulated Depreciation........... (3,052) (2,906) (2,943) (2,797) (2,661) (2,476) (2,286) Other Assets....................... 260 147 204 97 46 38 36 ---------- -------- ---------- ---------- ------- ---------- ---------- Total Assets............... $ 2,223 $ 1,943 $ 2,534 $ 1,981 $ 2,031 $ 2,069 $ 2,112 ========== ======== ========== ========== ======= ========== ========== Notes Payable...................... $ 3,776 $ 3,011 $ 3,800 $ 3,032 $ 3,058 $ 3,081 $ 3,101 Other Liabilities.................. 93 106 51 102 76 93 76 ---------- -------- ---------- ---------- ------- ---------- ---------- Total Liabilities.......... $ 3,869 $ 3,117 $ 3,851 $ 3,134 $ 3,134 $ 3,174 $ 3,177 ---------- -------- ---------- ---------- ------- ---------- ---------- Partners Capital (Deficit)................ $ (1,646) $ (1,174) $ (1,317) $ (1,153) $(1,103) $ (1,105) $ (1,065) ========== ======== ========== ========== ======= ========== ==========
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, --------------------- ---------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- -------- ---------- ---------- ------ ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue...................... $ 796 $ 762 $ 1,083 $ 1,064 $1,080 $ 1,088 $ 1,012 Other Income........................ 42 70 62 95 71 66 83 ---------- -------- ---------- ---------- ------ ---------- ---------- Total Revenue............... $ 838 $ 832 $ 1,145 $ 1,159 $1,151 $ 1,154 $ 1,095 ---------- -------- ---------- ---------- ------ ---------- ---------- Operating Expenses.................. 373 453 664 682 563 589 489 General & Administrative............ 6 13 21 20 30 42 85 Depreciation........................ 109 109 146 136 185 192 182 Interest Expense.................... 187 241 327 324 326 329 358 Property Taxes...................... 37 36 47 45 45 42 43 ---------- -------- ---------- ---------- ------ ---------- ---------- Total Expenses.............. $ 712 $ 852 $ 1,205 $ 1,207 $1,149 $ 1,194 $ 1,157 ---------- -------- ---------- ---------- ------ ---------- ---------- Net Income before extraordinary items............................. $ 126 $ (20) $ (60) $ (48) $ 2 $ (40) $ (62) Extraordinary Items................. -- -- (104) -- -- -- -- ---------- -------- ---------- ---------- ------ ---------- ---------- Net Income.......................... $ 126 $ (20) $ (164) $ (48) $ 2 $ (40) $ (62) ========== ======== ========== ========== ====== ========== ========== Net Income per limited partnership unit.............................. $ 4,023.87 $(638.71) $(5,228.97) $(1,548.39) $52.85 $(1,263.97) $(1,980.00) ========== ======== ========== ========== ====== ========== ========== Distributions per limited partnership unit.............................. $14,539.17 $ -- $ -- $ 64.52 $ -- $ -- $ -- ========== ======== ========== ========== ====== ========== ==========
S-50 3465 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 To the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $126,000 for the nine months ended September 30, 1998, compared to a net loss of $20,000 for the nine months ended September 30, 1997. The increase in net income of $146,000 was primarily the result of an increase in rental revenues and corresponding decreases in operating expenses and interest expense. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $796,000 for the nine months ended September 30, 1998, compared to $762,000 for the nine months ended September 30, 1997, an increase of $34,000, or 4.46%. This increase is due to a 2.0% increase in rental rates, offset by a 1% decrease in occupancy. Offsetting this increase was a $28,000 decrease in other income, due primarily to lower lease cancellation fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $373,000 for the nine months ended September 30, 1998, compared to $453,000 for the nine months ended September 30, 1997, a decrease of $80,000, or 17.66%. The decrease is primarily due to less demand for maintenance coupled with lower property expenses. Partnership Property management expenses totaled $43,000 for the nine months ended September 30, 1998, compared to $42,000 for the nine months ended September 30, 1997, an increase of $1,000, or 2.38%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $6,000 for the nine month's ended September 30, 1998 compared to $13,000 for the nine months ended September 30, 1997, a decrease of $7,000, or 53.84%. The decrease is primarily due to lower professional fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $187,000 for the nine months ended September 30, 1998, compared to $241,000 for the nine months ended September 30,1997, a decrease of $54,000, or 22.41%. The decrease is primarily due to a lower interest rate on the mortgage indebtedness, which was refinanced in the 4th quarter of 1997. S-51 3466 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized a net loss of $164,000 for the year ended December 31, 1997, compared to a loss of $48,000 for the year ended December 31, 1996. The increase in net loss of $116,000, or 241.67%, was primarily the result of an extraordinary loss of $104,000 in 1997 related to the refinancing of the first mortgage. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,145,000 for the year ended December 31, 1997, compared to $1,159,000 for the year ended December 31, 1996, a decrease of $14,000, or 1.21%. This change is primarily due to a decrease of $33,000 in other income, which is largely due to lower lease cancellation fees for the year, coupled with a decrease in cleaning and damage fees and deposit forfeitures. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $664,000 for the year ended December 31,1997, compared to $682,000 for the year ended December 31, 1996, a decrease of $18,000 or 2.64%. This decrease is largely due to a decrease in contract exterminating charges. Management expenses were approximately $6,000 which represents a 1.75% decrease from the prior period. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $21,000 for the year ended December 31, 1997 which is comparable to $20,000 in expenses incurred for the year ended December 31, 1996. DEPRECIATION EXPENSE Depreciation expense increased $10,000 (7.4%) to $146,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. EXTRAORDINARY LOSS During the 4th quarter of 1997, Your Partnership refinanced its mortgage indebtedness. The total indebtedness refinanced was $3,004,000. The new indebtedness of $3,800,000 carries a stated rate of 7.25%. Your Partnership recognized an extraordinary loss of $104,000, resulting from prepayment penalties incurred and the write-off of unamortized loan costs. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized a net loss of $48,000 for the year ended December 31, 1996, compared to net income of $2,000 for the year ended December 31, 1995. The increase in net loss of $50,000 was primarily the result of a decrease in rental revenues and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,159,000 for the year ended December 31, 1996, compared to $1,151,000 for the year ended December 31, 1995, an increase of $8,000, or 0.70%. Other income increased $24,000 due to increased lease cancellation fees and clearing and damage fees. Partially offsetting this increase was a decrease in average rental rates, which caused rental revenue to decline $16,000. S-52 3467 EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $682,000 for the year ended December 31, 1996, compared to $563,000 for the year ended December 31, 1995, an increase of $119,000, or 21.14%. This increase is largely due to improvements to the interior of the building and painting of the interior and the exterior, which took place in 1996. Property management expenses of $57,000 were comparable to those of the prior period. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $20,000 for the year ended December 31, 1996 compared to $30,000 for the year ended December 31, 1995, a decrease of $10,000 or 33%. This decrease is due to lower professional fees. DEPRECIATION EXPENSE Depreciation expense decreased $49,000 to $136,000 for the year ended December 31, 1996. This decrease is the result of part of the building becoming fully depreciated in 1995. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $324,000 for the year ended December 31, 1996, compared to $326,000 for the year ended December 31, 1995, a decrease of $2,000, or .61%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $280,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $3,776,000. The mortgage requires monthly payments of approximately $26,000, including interest at 7.25% per annum, with a balloon payment of $2,469,000 due at maturity in January, 2008. The note is collateralized by all apartment property and related tenant leases. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your Partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 3468 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 30 units of your partnership (up to 7.50 units) for consideration per unit of (i) 959 Preferred OP Units, (ii) 619.75 Common OP Units, or (iii) $23,971 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 3469 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 3470 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 3471 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 3472 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 3473 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 3474 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell its property or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 3475 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 3476 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 3477 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 3478 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 3479 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 3480 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 3481 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 3482 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 3483 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 3484 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 3485 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2019. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating the land and construct your partnership's Partnership is to conduct any business that property for investment and to hold your may be lawfully conducted by a limited partnership's property for capital partnership organized pursuant to the appreciation and the production of income. Delaware Revised Uniform Limited Part- Subject to restrictions contained in your nership Act (as amended from time to time, partnership's agreement of limited or any successor to such statute) (the partnership, your partnership may do all "Delaware Limited Partnership Act"), things necessary for or incidental to the provided that such business is to be protection and benefit of your partner- conducted in a manner that permits AIMCO to ship, including, borrowing funds and be qualified as a REIT, unless AIMCO ceases creating liens. to qualify as a REIT. The AIMCO Operating Partner-
S-71 3486 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 30 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or not enter into agreements with themselves or contribute funds or other assets to its any of its affiliates, other than those set subsidiaries or other persons in which it forth in your partner- has an equity investment,
S-72 3487 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's agreement of limited partnership. and such persons may borrow funds from the However, the general partner may, and in AIMCO Operating Partnership, on terms and certain circumstances are required, lend conditions established in the sole and such money to your partnership as they, in absolute discretion of the general partner. their sole discretion, deem necessary for To the extent consistent with the business the payment of any partnership obligations purpose of the AIMCO Operating Partnership and expenses. Such loans will be repaid with and the permitted activities of the general interest at a rate the lesser of 10 5/8% per partner, the AIMCO Operating Partnership may annum or 1% per annum over the then transfer assets to joint ventures, limited prevailing prime rate of Citibank, N.A., New liability companies, partnerships, York, New York, but in no event to exceed corporations, business trusts or other the maximum rate, prior to distributions to business entities in which it is or thereby the limited partners, only from available becomes a participant upon such terms and funds. subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies Subject to obtaining prior written approval The AIMCO Operating Partnership Agreement from the limited partners owning more than contains no restrictions on borrowings, and 50% of the outstanding units, the general the general partner has full power and partner of your partnership is authorized to authority to borrow money on behalf of the borrow money and if security is required AIMCO Operating Partnership. The AIMCO therefore, to mortgage or subject to any Operating Partnership has credit agreements other security device any portion of your that restrict, among other things, its partnership's property or other partnership ability to incur indebtedness. assets, as the general partner deems, in their sole discretion, to be in the best interests of your partnership.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP review the books and records of your Unitholder's own expense, to obtain a partnership upon reasonable notice at current list of the name and last known reasonable times at the location where such business, residence or mailing address of records are kept by your partnership. the general partner and each other OP Unitholder.
Management Control The general partner of your partnership is All management powers over the business and solely responsible for the management of affairs of the AIMCO Operating Partnership your partnership's business and has all are vested in AIMCO-GP, Inc., which is the rights and powers generally conferred by law general partner. No OP Unitholder has any or necessary, advisable or consistent in right to participate in or exercise control connection therewith. No limited partner may or management power over the business and take part in or interfere in any manner with affairs of the AIMCO Operating Partner-
S-73 3488 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP the conduct or control of the business of ship. The OP Unitholders have the right to your partnership and no limited partner has vote on certain matters described under the right or authority to act for or bind "Comparison of Your Units and AIMCO OP your partnership. Units -- Voting Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable to your partnership or the limited to the AIMCO Operating Partnership for partners for any loss or damage resulting losses sustained, liabilities incurred or from any act or omission performed or benefits not derived as a result of errors omitted in good faith, pursuant to the in judgment or mistakes of fact or law of authority granted to them to promote the any act or omission if the general partner interests of your partnership. Moreover, the acted in good faith. The AIMCO Operating general partner is not liable to your Partnership Agreement provides for partnership or the limited partners because indemnification of AIMCO, or any director or any taxing authorities disallow or adjust officer of AIMCO (in its capacity as the any deductions or credits in your previous general partner of the AIMCO partnership income tax returns. In addi- Operating Partnership), the general partner, tion, your partnership will also indemnify any officer or director of general partner the general partner and its affiliates or the AIMCO Operating Partnership and such against any loss, expense, liability, action other persons as the general partner may or damage resulting from any act or omission designate from and against all losses, performed or omitted in good faith, pursu- claims, damages, liabilities, joint or ant to the authority granted to them to several, expenses (including legal fees), promote the interests of your partnership if fines, settlements and other amounts any court determines that such conduct incurred in connection with any actions merits indemnity.
S-74 3489 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner upon a vote of the business and affairs of the AIMCO the limited partners holding a majority of Operating Partnership. The general partner the outstanding units. A general partner may may not be removed as general partner of the resign at any time provided that such AIMCO Operating Partnership by the OP resignation does not cause and accelerate of Unitholders with or without cause. Under the specified loans and sixty days prior to the AIMCO Operating Partnership Agreement, the effective date of such resignation such general partner may, in its sole discretion, general partner nominates as a substitute prevent a transferee of an OP Unit from general partner a willing person or entity becoming a substituted limited partner who meets the requirements of the tax laws pursuant to the AIMCO Operating Partnership and is acceptable to the limited partners. A Agreement. The general partner may exercise limited partners may not transfer its units this right of approval to deter, delay or without the consent of the general partner. hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership may be proposed by set forth in the AIMCO Operating Partnership the general partners of your partnership or Agreement, whereby the general partner may, by limited partners owning at least 20% of without the consent of the OP Unitholders, the then outstanding limited partnership amend the AIMCO Operating Partnership interests. Approval by a majority of the Agreement, amendments to the AIMCO Operating then outstanding limited partnership Partnership Agreement require the consent of interests is necessary to effect an the holders of a majority of the outstanding amendment to your partnership's agreement of Common OP Units, excluding AIMCO and certain limited partnership. The general partner may other limited exclusions (a "Majority in amend your partnership's agreement of Interest"). Amendments to the AIMCO limited partnership from time to time to Operating effect
S-75 3490 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP changes of a ministerial nature which do not Partnership Agreement may be proposed by the materially and adversely affect the rights general partner or by holders of a Majority of the limited partners. in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner is personally liable for Except for fraud, willful misconduct or any of the debts of your partnership or any gross negligence, no OP Unitholder has of the losses thereof beyond the amount of personal liability for the AIMCO Operating his capital contribution to your Partnership's debts and obligations, and partnership, plus an amount equal to its liability of the OP Unitholders for the share of undistributed profits of your AIMCO Operating Partnership's debts and partnership. When and if a limited partner obligations is generally limited to the has rightfully received the return in whole amount of their investment in the AIMCO or in part of its contribution to capital, Operating Partnership. However, the it may nevertheless be liable to your limitations on the liability of limited partnership for any sum, not in excess of partners for the obligations of a limited such return with interest necessary to partnership have not been clearly discharge your partnership's liabilities to established in some states. If it were all creditors who extend credit or whose determined that the AIMCO Operating Part- claims arose before such return. nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-76 3491 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership has Unless otherwise provided for in the an overriding fiduciary responsibility. relevant partnership agreement, Delaware law However, the general partner is not required generally requires a general partner of a to devote all of its time of business Delaware limited partnership to adhere to efforts to the affairs of your partnership, fiduciary duty standards under which it owes but must devote so much of its time and its limited partners the highest duties of attention to your partnership as is good faith, fairness and loyalty and which necessary and advisable to successfully generally prohibit such general partner from manage the affairs of your partnership. In taking any action or engaging in any addition, any partner or its affiliates may transaction as to which it has a conflict of engage in or hold interests in other interest. The AIMCO Operating Partnership business ventures of every kind and Agreement expressly authorizes the general description, including ventures in partner to enter into, on behalf of the competition with your partnership, in which AIMCO Operating Partnership, a right of neither your partnership nor any limited first opportunity arrangement and other partners will have any interest. conflict avoidance agreements with various affiliates of the AIMCO Operating In general, your partnership's agreement of Partnership and the general partner, on such limited partnership and the AIMCO Operating terms as the general partner, in its sole Partnership Agreement have limitations on and absolute discretion, believes are the liability of the general partner but advisable. The AIMCO Operating Partnership such limitations differ and provide more Agreement expressly limits the liability of protection for the general partner of the the general partner by providing that the AIMCO Operating Partnership. general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-77 3492 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be retained by the AIMCO Operating Partnership for working capital
S-78 3493 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting holders of a majority of the Agreement, the holders of rights only with respect to outstanding units is re- the Preferred OP Units will certain limited matters such quired to borrow money, to have the same voting rights as certain amendments and sell or otherwise dispose of as holders of the Common OP termination of the AIMCO your partnership's property, Units. See "Description of Operating Partnership to amend your partnership's OP Units" in the accompany- Agreement and certain agreement of limited ing Prospectus. So long as transactions such as the partnership except in any Preferred OP Units are institution of bankruptcy limited circumstances, to outstanding, in addition to proceedings, an assignment terminate your partnership, any other vote or consent of for the benefit of creditors to remove a general partner partners required by law or and certain transfers by the and to elect a trustee to by the AIMCO Operating general partner of its liquidate and distribute Partnership Agreement, the interest in the AIMCO assets if necessary. affirmative vote or consent Operating Partnership or the of holders of at least 50% admission of a successor A general partner may cause of the outstanding Preferred general partner. the dissolution of your OP Units will be necessary partnership by retiring for effecting any amendment Under the AIMCO Operating unless, the remaining of any of the provisions of Partnership Agreement, the general partner, or if none, the Partnership Unit general partner has the all of the limited partners Designation of the Preferred power to effect the agree to continue the OP Units that materially and acquisition, sale, transfer, business and elect a adversely affects the rights exchange or other successor general partner. or preferences of the disposition of any assets of holders of the Preferred OP the AIMCO Operating In general, you have greater Units. The creation or Partnership (including, but voting rights in your issuance of any class or not limited to, the exercise partnership than you will series of partnership units, or grant of any conversion, have as an OP Unitholder. OP including, without option, privilege or Unitholders can not remove limitation, any partner- subscription right or any the general partner of the ship units that may have other right available in AIMCO Operating Partnership. rights senior or superior to connection with any assets the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) materially adversely affect or the merger, the rights or preferences of consolidation, the holders of Preferred OP reorganization or other Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless,
S-79 3494 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash From at the rate of $0.50 per or such portion as the Operations are disbursed not Preferred OP Unit; provided, general partner may in its less often then quarterly however, that at any time sole and absolute discretion with respect to each and from time to time on or determine, of Available Cash calendar year. Your part- after the fifth anniversary (as defined in the AIMCO nership has made of the issue date of the Operating Partnership distributions in the past Preferred OP Units, the Agreement) generated by the and is projected to made AIMCO Operating Partnership AIMCO Operating Partnership distributions in 1999. may adjust the annual during such quarter to the distribution rate on the general partner, the special Preferred OP Units to the limited partner and the lower of (i) 2.00% plus the holders of Common OP Units annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the Such distributions will be
S-80 3495 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cumulative from the date of future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited be entitled to receive any partner and holders of distributions in excess of Common OP Units with respect cumulative distributions on to distributions of the Preferred OP Units. No Available Cash, interest, or sum of money in distributions upon lieu of interest, shall be liquidation or other payable in respect of any distributions. See "Per distribution payment or pay- Share and Per Unit Data" in ments on the Preferred OP the accompanying Prospectus. Units that may be in arrears. The general partner in its sole and absolute discretion When distributions are not may distribute to the OP paid in full upon the Unitholders Available Cash Preferred OP Units or any on a more frequent basis and Parity Units (as defined provide for an appropriate below), all distributions record date. declared upon the Preferred OP Units and any Parity The AIMCO Operating Partner- Units shall be declared ship Agreement requires the ratably in proportion to the general partner to take such respective amounts of reasonable efforts, as distributions accumulated, determined by it in its sole accrued and unpaid on the and absolute discretion and Preferred OP Units and such consistent with AIMCO's Parity Units. Unless full qualification as a REIT, to cumulative distributions on cause the AIMCO Operating the Preferred OP Units have Partnership to distribute been declared and paid, sufficient amounts to en- except in limited circum- able the general partner to stances, no distributions transfer funds to AIMCO and may be declared or paid or enable AIMCO to pay stock- set apart for payment by the holder dividends that will AIMCO Operating Partnership (i) satisfy the requirements and no other distribution of for qualifying as a REIT cash or other property may under the Code and the be declared or made, Treasury Regulations and directly or indirectly, by (ii) avoid any Federal the AIMCO Operating income or excise tax Partnership with respect to liability of AIMCO. See any Junior Units (as de- "Description of OP fined below), nor shall any Units -- Distributions" in Junior Units be redeemed, the accompanying Prospectus. purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his limited for the Preferred OP Units for the OP Units. The AIMCO partnership interest to any and the Preferred OP Units Operating Partnership person provided that: (1) are not listed Agreement re-
S-81 3496 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS such transfer is not in on any securities exchange. stricts the transferability contravention of any The Preferred OP Units are of the OP Units. Until the applicable law or your subject to restrictions expiration of one year partnership's agreement of on transfer as set forth from the date on limited partnership, (ii) a in the AIMCO Operating which an OP Unitholder duly executed and Partnership Agreement. acquired OP Units, subject acknowledged assignment has to certain exceptions, such been approved by the general Pursuant to the AIMCO OP Unitholder may not partner and (iii) the Operating Partnership transfer all or any por- transferee represents in Agreement, until the tion of its OP Units to any writing that it satisfies expiration of one year from transferee without the the suitability re- the date on which a holder consent of the general quirements for limited of Preferred OP Units partner, which consent may partners. However, no acquired Preferred OP Units, be withheld in its sole and transfer may occur if in subject to certain absolute discretion. After light of the total of all exceptions, such holder of the expiration of one year, transfers sold or exchanged Preferred OP Units may not such OP Unitholder has the within the period of twelve transfer all or any portion right to transfer all or any consecutive months prior of its Preferred OP Units to portion of its OP Units to there, there might result a any transferee without the any person, subject to the termination of your part- consent of the general satisfaction of certain con- nership for tax purposes in partner, which consent may ditions specified in the the opinion of counsel. In be withheld in its sole and AIMCO Operating Partnership order for a transferee to be absolute discretion. After Agreement, including the substituted as a limited the expiration of one year, general partner's right of partner, in addition to the such holders of Preferred OP first refusal. See above requirements: (1) the Units has the right to "Description of OP Units -- assignee must execute an transfer all or any portion Transfers and Withdrawals" irrevocable power of of its Preferred OP Units to in the accompanying attorney appointing the any person, subject to the Prospectus. general partner as the as- satisfaction of certain signee's attorney-in-fact, conditions specified in the After the first anniversary (2) a transfer fee must be AIMCO Operating Partner- of becoming a holder of paid, (3) the interest ship Agreement, including Common OP Units, an OP transferred must not be less the general partner's right Unitholder has the right, than one unit or such lesser of first refusal. subject to the terms and amount as the assignor owned conditions of the AIMCO and (4) such other After a one-year holding Operating Partnership conditions as are set forth period, a holder may redeem Agreement, to require the in your partnership's Preferred OP Units and AIMCO Operating Partnership agreement of limited receive in exchange to redeem all or a portion partnership must be therefor, at the AIMCO Oper- of the Common OP Units held fulfilled. ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on There are no redemption any Senior Units (as defined the value of shares of Class rights associated with your below), cash in an amount A Common Stock. See units. equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to acquire some or all of the ten-
S-82 3497 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common the Preferred OP Units Stock, based on an exchange tendered for redemption; ratio of one share of Class provided that such shares A Common Stock for each Com- are part of a class or mon OP Unit, subject to series of preferred stock adjustment as provided in that is then listed on the the AIMCO Operating NYSE or another national Partnership Agreement. securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 3498 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 3499 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 3500 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 3501 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 3502 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 3503 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 3504 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 3505 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-91 3506 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 3507 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $17,000 in 1996, $15,009 in 1997 and $8,500 in 1998. The property manager received management fees of $57,000 in 1996, $56,000 in 1997 and $57,074 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 3508 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $179,783 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus, an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 3509 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Rivercreek Apartments Limited Partnership at December 31, 1997, and for the year then ended, as set forth in their report. We've included the financial statements of Rivercreek Apartments Limited Partnership in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-95 3510 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS TABLE OF CONTENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note A -- Basis of Presentation (Unaudited)................. F-4 Independent Auditors' Report................................ F-5 Balance Sheet as of December 31, 1997....................... F-6 Statement of Operations for the year ended December 31, 1997...................................................... F-7 Statement of Partners' Deficit/Capital for the year ended December 31, 1997......................................... F-8 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-9 Notes to Financial Statements............................... F-10 Balance Sheet as of December 31, 1996 (unaudited)........... F-15 Statement of Operations for the year ended December 31, 1996 (unaudited)............................................... F-16 Statement of Partners' Deficit/Capital for the year ended December 31, 1996 (unaudited)............................. F-17 Statement of Cash Flows for the year ended December 31, 1996 (unaudited)............................................... F-18 Notes to Financial Statements (unaudited)................... F-19
F-1 3511 RIVERCREEK APARTMENTS CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 280,125 Receivables and Deposits.................................... 54,451 Restricted Escrows.......................................... 58,600 Other Assets................................................ 145,993 Investment Property Land...................................................... $ 321,687 Building and related personal property.................... 4,413,463 ----------- 4,735,150 Less: Accumulated depreciation............................ (3,051,747) 1,683,403 ----------- ----------- Total Assets...................................... $ 2,222,572 =========== LIABILITIES AND PARTNERS' DEFICIT Accrued Liabilities....................................... $ 92,630 Notes Payable............................................. 3,775,778 Partners' deficit................................. (1,645,836) ----------- Total Liabilities and Partners' Deficit........... $ 2,222,572 ===========
See accompanying note. F-2 3512 RIVERCREEK APARTMENTS CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $795,488 $761,965 Other income.............................................. 42,315 69,671 -------- -------- Total revenues.................................... 837,803 831,636 Expenses: Operating expenses........................................ 372,779 453,110 General and administrative expenses....................... 6,132 12,648 Depreciation expense...................................... 109,355 109,355 Interest expense.......................................... 186,773 240,893 Property tax expense...................................... 36,983 35,789 -------- -------- Total expenses.................................... 712,022 851,795 Net income (loss)................................. $125,781 $(20,159) ======== ========
See accompanying note. F-3 3513 RIVERCREEK APARTMENTS CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 --------- -------- Operating activities: Net Income (loss)......................................... $ 125,781 $(20,159) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 109,355 109,355 Changes in accounts: Receivables and deposits and other assets............ (21,179) (64,828) Accounts payable and accrued expenses................ 41,630 4,401 --------- -------- Net cash provided by operating activities......... 255,587 28,769 --------- -------- Investing Activities: Property improvements and replacements.................... (61,373) (104,381) Net (increase)/decrease in restricted escrows............. (33,600) 14,000 --------- -------- Net cash used in investing activities............. (94,973) (90,381) --------- -------- Financing Activities: Payments on mortgage...................................... (24,222) (21,295) Partners' distributions................................... (455,267) -- --------- -------- Net cash used in financing activities............. (479,489) (21,295) --------- -------- Net decrease in cash and cash equivalents......... (318,875) (82,907) Cash and cash equivalents at beginning of year............ 599,000 157,000 --------- -------- Cash and cash equivalents at end of period................ $ 280,125 $ 74,093 ========= ========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Rivercreek Apartments Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 3514 REPORT OF INDEPENDENT AUDITORS The Partners Rivercreek Apartments Limited Partnership We have audited the accompanying balance sheet of Rivercreek Apartments Limited Partnership as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rivercreek Apartments Limited Partnership at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-5 3515 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents:.................................. $ 599 Receivables and deposits.................................... 60 Accounts receivable -- General Partners..................... 13 Restricted escrow (Note C).................................. 25 Prepaid assets.............................................. 5 Deferred charges (Note C)................................... 101 Investment property (Notes B and C): Land...................................................... $ 322 Building and improvements................................. 4,352 ------- 4,674 Less accumulated depreciation............................. (2,943) 1,731 ------- ------- $ 2,534 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18 Other liabilities......................................... 17 Tenant security deposits payable.......................... 16 Mortgage note payable (Note C)............................ 3,800 ------- 3,851 Partners' capital/(deficit): General partners.......................................... $ 8 Limited partners (31 units issued and outstanding)........ (1,325) (1,317) ------- ------- $ 2,534 =======
See accompanying notes. F-6 3516 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,083 Other income.............................................. 62 ---------- 1,145 Expenses: Operating................................................. $664 General and administrative................................ 21 Depreciation.............................................. 146 Interest (Note B)......................................... 327 Property taxes............................................ 47 1,205 ---- ---------- Loss before extraordinary item.............................. (60) Extraordinary loss on extinguishment of debt (Note C)....... (104) ---------- Net loss.................................................... $ (164) ========== Net loss allocated to general partners (1%)................. $ (2) Net loss allocated to limited partners (99%)................ (162) ---------- $ (164) ========== Per limited partnership unit: Loss before extraordinary item............................ $(1,920.29) Extraordinary loss on extinguishment of debt.............. (3,308.68) ---------- Net loss.................................................... $(5,228.97) ==========
See accompanying notes. F-7 3517 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' (deficit)/capital at December 31, 1996............ $(1,163) $10 $(1,153) Net loss.................................................. (162) (2) (164) ------- --- ------- Partners' (deficit)/capital at December 31, 1997............ $(1,325) $ 8 $(1,317) ======= === =======
See accompanying notes. F-8 3518 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (164) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 146 Amortization of loan costs............................. 6 Extraordinary loss on extinguishment of debt........... 104 Changes in assets and liabilities: Receivables and deposits............................. (24) Other assets......................................... (5) Accounts payable..................................... (27) Security deposits payable............................ (3) Other liabilities.................................... (22) ------- Net cash provided by operating activities................. 11 Cash flows from investing activities Deposits to restricted escrows............................ (11) Property improvements and replacements.................... (150) ------- Net cash used in investing activities..................... (161) Cash flows from financing activities Loan costs................................................ (101) Proceeds from refinancing................................. 3,800 Payoff of mortgage note payable........................... (3,004) Principal payments on mortgage note payable............... (28) Prepayment penalty........................................ (75) ------- Net cash provided by financing activities................. 592 ------- Increase in cash and cash equivalents..................... 442 Cash and cash equivalents at December 31, 1996............ 157 ------- Cash and cash equivalents at December 31, 1997............ $ 599 ======= Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 320 =======
See accompanying notes. F-9 3519 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. Thirty-one units of limited partnership interests, an individual general partnership interest, and a corporate general partnership interest were issued. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-10 3520 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $25,000. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Rivercreek Apartments............................ $3,800 $322 $3,196 $1,156 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE - YEARS ----------- ---- ----------- ------ ------------ -------- ------------ Rivercreek Apartments........... $322 $4,352 $4,674 $2,943 11/15/80 5 -30 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. F-11 3521 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment property Balance at beginning of year.............................. $4,524 Property improvements..................................... 150 ------ Balance at end of year.................................... $4,674 ====== Accumulated depreciation Balance at beginning of year.............................. $2,797 Additions charged to expense.............................. 146 ------ Balance at end of year.................................... $2,943 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $4,674,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,062,000. NOTE C -- MORTGAGE NOTE PAYABLE In December 1997, the Partnership refinanced the mortgage encumbering the investment property. The total indebtedness refinanced was approximately $3,004,000. The new indebtedness of $3,800,000 carries a stated rate of 7.25% and is amortized over thirty years with a balloon payment of $2,469,000 due on January 1, 2008. A Repair Escrow of $25,000 was established with the refinancing proceeds for certain repairs identified at the time of the refinancing. In addition, the new note requires a monthly deposit of approximately $4,000 for a replacement reserve. The Partnership incurred approximately $101,000 in loan costs associated with the refinancing. The Partnership recognized an extraordinary loss of approximately $104,000 resulting from prepayment penalties incurred and the write-off of unamortized loan costs. The mortgage note is payable in monthly installments of approximately $26,000. The mortgage note is nonrecourse and is collateralized by all apartment property and related tenant leases. The mortgage note requires prepayment penalties if repaid prior to maturity. Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998....................................................... $ 34 1999....................................................... 39 2000....................................................... 42 2001....................................................... 45 2002....................................................... 49 Thereafter................................................. 3,591 ------ $3,800 ======
NOTE D -- RELATED PARTY TRANSACTIONS Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $56 General partner reimbursements.............................. 9
F-12 3522 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additionally, the Partnership paid approximately $15,000 to affiliates of Insignia for reimbursements of costs related to the refinancing of Rivercreek in December 1997. These costs were capitalized as loan costs and are being amortized over the term of the loan. For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ (164) Add: Depreciation differences............................... 20 ---------- Federal loss................................................ $ (144) ========== Federal taxable loss per limited partnership unit........... $(4,598.71) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $(1,317) Accumulated depreciation.................................... (119) Syndication and distribution costs.......................... 181 Other....................................................... 11 ------- Net liabilities -- tax basis................................ $(1,244) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. F-13 3523 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 3524 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 157 Receivables and deposits.................................... 36 Accounts Receivable -- General Partners..................... 13 Restricted escrows.......................................... 14 Deferred Charges............................................ 34 Investment property (Notes B and C): Land...................................................... $ 322 Building and improvements................................. 4,202 ------- 4,524 Less accumulated depreciation............................. (2,797) 1,727 ------- ------- $ 1,981 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable and other accrued liabilities............ $ 45 Other liabilities......................................... 38 Tenant security deposits payable.......................... 19 Mortgage notes payable (Note C)........................... 3,032 ------- 3,134 Partners' capital/(deficit): General partners.......................................... $ 10 Limited partners (31 units issued and outstanding) (1,163) (1,153) $ 1,981 =======
See accompanying notes. F-15 3525 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,064 Other income.............................................. 95 ---------- 1,159 Expenses: Operating................................................. $650 General and administrative................................ 20 Depreciation.............................................. 136 Interest.................................................. 324 Property taxes............................................ 45 Bad debt expense.......................................... 32 1,207 ---- ---------- Net loss.................................................... $ (48) ========== Net loss allocated to general partners (1%)................. $ (0) Net loss allocated to limited partners (99%)................ (48) ---------- $ (48) ========== Net loss per limited partnership unit....................... $(1,548.39) ==========
See accompanying notes. F-16 3526 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CHANGES/DEFICIT (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' capital/(deficit) at December 31, 1995............ $(1,113) $10 $(1,103) Distributions............................................. (2) -- (2) Net loss.................................................. (48) -- (48) ------- --- ------- Partners' capital/(deficit) at December 31, 1996............ $(1,163) $10 $(1,153) ======= === =======
See accompanying notes. F-17 3527 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities: Net loss.................................................. $ (48) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 136 Changes in assets and liabilities: Receivables and deposits............................. (31) Accounts payable and accrued interest................ 27 Tenant security deposits payable..................... (1) ----- Net cash provided by operating activities......... 83 ----- Cash flows from investing activities: Deposits to restricted escrows............................ 2 Property improvements and replacements.................... (188) ----- Net cash used in investing activities............. (186) ----- Cash flows from financing activities: Loan costs................................................ (22) Distributions to partners................................. (2) Principal payments on mortgage note payable............... (26) ----- Net cash used in financing activities............. (50) ----- Decrease in cash and cash equivalents............. (153) Cash and cash equivalents at December 31, 1995.............. 310 ----- Cash and cash equivalents at December 31, 1996.............. $ 157 ===== Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 324 =====
See accompanying notes. F-18 3528 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. Thirty-one units of limited partnership interests, an individual general partnership interest, and a corporate general partnership interest were issued. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-19 3529 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1996 was approximately $14,000. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ---------------- Rivercreek Apartments.......................... $3,032 $322 $3,196 $1,006 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS ----------- ---- ----------- ------ ------------ -------- ----------- Rivercreek Apartments........... $322 $4,202 $4,524 $2,797 11/15/80 5-30 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. F-20 3530 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $4,336 Property improvements..................................... 188 ------ Balance at end of year.................................... $4,524 ====== Accumulated Depreciation Balance at beginning of year.............................. $2,661 Additions charged to expense.............................. 136 ------ Balance at end of year.................................... $2,797 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $4,524,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is approximately $2,936,000. NOTE C -- MORTGAGE NOTE PAYABLE The mortgage note is payable in monthly installments of approximately $29,000 including interest at 10.625% per annum, and matures in 2012. The note is collateralized by all apartment property and related tenant leases. The mortgage note may be prepaid with a prepayment premium of 2% of the outstanding principal balance. The prepayment premium will decrease at the rate of 1/2% each year until it reaches 1%. Principal maturities of the mortgage note payable at December 31, 1996 are as follows (in thousands): 1997........................................................ $ 29 1998........................................................ 32 1999........................................................ 35 2000........................................................ 39 2001........................................................ 44 Thereafter.................................................. 2,853 ------ $3,032 ======
NOTE D -- RELATED PARTY TRANSACTIONS Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $57 General partner reimbursements.............................. $17
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. F-21 3531 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ (48) Add: Depreciation differences.................................. 10 ---------- Federal taxable loss........................................ $ (38) ========== Federal taxable loss per limited partnership unit........... $(1,225.81) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $(1,153) Accumulated depreciation.................................... (139) Syndication and distribution costs.......................... 181 Other....................................................... 11 ------- Net liabilities -- tax basis................................ $(1,100) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-22 3532 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 3533 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 3534 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 3535 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3536 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3537 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3538 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3539 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3540 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3541 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3542 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3543 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3544 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3545 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3546 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3547 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3548 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3549 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3550 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3551 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3552 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3553 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3554 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3555 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3556 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3557 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3558 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3559
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i) Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii)Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3560 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3561
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i) Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3562 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3563 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3564 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3565
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3566 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3567 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3568 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3569
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3570 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3571 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3572 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3573 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3574 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3575 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3576 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3577 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3578 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3579 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3580 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3581 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3582 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Rivercreek Apartments Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Rivercreek Apartments Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $23,971 in cash, or 619.75 Common OP Units of the Purchaser, or 959 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3583 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3584 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3585 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3586
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3587
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3588
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3589
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3590 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3591 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Rivercrest Apartments Ltd. in exchange for your choice of: 1,799.25 of our 8.0% Class Two Partnership Preferred Units; 1,162.75 of our Partnership Common Units; or $44,980 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $44,980 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Although your partnership's agreement of limited partnership provides for termination in the year 2013, the private placement memorandum pursuant to which units were sold in 1983 indicated that the property owned by your partnership might be sold within four to six years of its acquisitions if conditions permitted. Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3592 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Rivercrest Apartments Ltd............................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59
i 3593
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3594 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Corporation and GP Real Estate Services II, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $14,400,000, less approximately $418,624 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit. S-1 3595 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3596 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $3,598.50 per year on the number of Preferred OP Units, or distributions of $2,906.88 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 3597 partnership's units. During 1998, your partnership paid cash distributions of $3,300 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 3598 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated October 24, 1983, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within four to six years of their acquisition, provided market conditions permit. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2013. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $5,909,000 balloon payment due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment date, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 3599 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments of $5,909,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 3600 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,300 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,598.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,300 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,906.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 3601 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the property may be sold in approximately four to six years from the date of acquisition, such property was not so sold. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3602 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.18% resulting in a final capitalization rate of 10.07%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 1,450,000 Capitalization rate......................................... 10.07% Estimated total gross valuation of your partnership's property.................................................. $14,400,000 Plus: Cash and cash equivalents............................. 427,469 Plus: Other partnership assets, net of security deposits.... 391,242 Less: Mortgage debt, including accrued interest............. (6,944,876) Less: Accounts payable and accrued expenses................. (221,838) Less: Other liabilities..................................... (26,262) Partnership valuation before taxes and certain costs........ 8,025,735 Less: Disposition fees...................................... (432,000) Less: Extraordinary capital expenditures for deferred maintenance............................................... (418,624) Less: Closing costs......................................... (360,000) Estimated net valuation of your partnership................. 6,815,111 Percentage of estimated net valuation allocated to units.... 99% Estimated net valuation of units............................ 6,746,960 Total number of units............................. 150 Estimated valuation per unit................................ 44,980 ----------- Cash consideration per unit................................. $ 44,980 -----------
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $44,980 by the $25 liquidation preference of each Preferred OP Unit to get 1,799.25 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $44,980 by a price of $38.69 to get 1,162.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 3603 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 44,980 Partnership Preferred Units................................. $ 44,980 Partnership Common Units.................................... $ 44,980 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 44,980 Estimated going concern value............................. $ 42,334 Alternative going concern value(1)........................ 43,753 Net book value (deficit).................................. $(14,793)
- --------------- (1) Assumes sale of property when a balloon payment is due instead of refinancing the mortgage. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 3604 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Rivercrest Apartments Ltd. is a South Carolina limited partnership which was formed on November 30, 1983 for the purpose of owning and operating a single apartment property located in Roswell, Georgia, known as "Rivercrest Apartments." Your Partnership's Property consists of 312 apartment units and was built in 1970. Your partnership has no employees. As of September 30, 1998, there were 150 units of limited partnership interest issued and outstanding, which were held of record by 142 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $8,887,500 of limited partnership units in October 1993. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $3,300 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $6,727,723, payable to GMAC, which bears interest at the rate of 7.6%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of $243,117, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 3605 THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,799.25 of our Class Two Partnership Preferred Units; - 1,162.75 of our Partnership Common Units; or - $44,980 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 150 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,799.25 Preferred OP Units, 1,162.75 Common OP Units, or $44,980 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 3606 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 3607 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $44,980 in cash, 1,799.25 Preferred OP Units or 1,162.75 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I S-14 3608 Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $44,980. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $12,000 for the fiscal year ended December 31, 1998. The property manager received management fees of $140,847.09 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,686,750 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 3609 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 3610
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 3611 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 3612
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 3613 SUMMARY FINANCIAL INFORMATION OF RIVERCREST APARTMENTS LTD. The summary financial information of Rivercrest Apartments Ltd for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Rivercrest Apartments Ltd. for the year ended December 31, 1997 is based on audited financial statements and for the years ended December 31, 1996 is based on unaudited financial statements. The summary financial information for 1995, 1994 and 1993 is based on unaudited financial information which is not in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." RIVERCREST APARTMENTS LTD.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues...................... $ 2,068 $ 2,029 $ 2,740 $ 2,607 $ 2,452 $ 2,305 $ 2,109 Net Income/(Loss)................... $ 240 $ 47 $ 84 $ 171 $ 8 $ (87) $ (445) Net Income per limited partnership unit.............................. $ 1,584.00 $ 310.20 $ 554.40 $ 1,126.67 $ 55.85 $ (574.35) $(2,937.52) Distributions per limited partnership unit.................. $ 3,300.00 -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital).............. -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 538 $ 846 $ 928 $ 460 $ 202 $ 147 $ 162 Real Estate, Net of Accumulated Depreciation...................... $ 8,503 $ 8,683 $ 8,638 $ 8,878 $ 9,181 $ 9,385 $ 9,741 Total Assets........................ $ 9,579 $ 10,010 $ 10,054 $ 9,906 $ 9,880 $ 9,991 $ 10,173 Notes Payable....................... $ 6,789 $ 7,046 $ 6,922 $ 7,073 $ 7,209 $ 7,331 $ 7,466 General Partners' Capital/(Deficit)... $ (63) $ (60) $ (60) $ (61) $ (63) $ (64) $ (63) Limited Partners' Capital/(Deficit)... $ 2,585 $ 2,805 $ 2,842 $ 2,759 $ 2,590 $ 2,583 $ 2,669 Partners' Deficit..................... $ 2,522 $ 2,745 $ 2,782 $ 2,698 $ 2,527 $ 2,519 $ 2,606 Total Distributions................... $ 500 $ -- $ -- $ -- $ -- $ -- $ -- Book value per limited partnership unit................................ $17,233.33 $19,273.33 $18,947.73 $18,393.33 $17,266.67 $17,220.00 $17,793.33 Net increase (decrease) in cash and cash equivalents.................... $ (390) $ 386 $ 468 $ 258 $ 56 $ (16) $ 5 Net cash provided by operating activities.......................... $ 559 $ 766 $ 1,000 $ 664 $ 510 $ 402 $ 34 Ratio of earnings to fixed charges.... 1.54/1 1.10/1 1.14/1 1.27/1 1.01/1 0.87/1 0.27/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO RIVERCREST OPERATING APARTMENTS PARTNERSHIP LTD. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,906.88 $$3,300 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $3,598.50 $3,300
S-20 3614 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 3615 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $14,400,000 less approximately $418,624 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 3616 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 3617 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2013 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 3618 is equivalent to distributions of $3,598.50 per year on the number of Preferred OP Units, or distributions of $2,906.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $3,300 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 3619 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated October 24, 1983, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within four to six years of their acquisition, provided market conditions permit. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2013. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $5,909,000 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 3620 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .68% interest, consisting of a 0% limited partnership interest and a .68% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 3621 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 3622 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $47,000 for the nine months ended September 30, 1997, to $240,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments totaling $5,909,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all S-29 3623 limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's properties would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 3624 - Preferred Quarterly Distributions. Your partnership paid distributions of $3,300 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,598.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,300 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,906.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 3625 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the property may be sold in approximately four to six years from the date of acquisition, such property was not so sold. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition B (good). Generally, we assign an initial capitalization rate of 10.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 0.18% resulting in a final capitalization rate of 10.07%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 3626 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $1,450,381 10.07% $14,400,000 -----------
- --------------- (1) The total net operating income is equal to total revenues of $2,702,317, less total expenses of $1,158,336 and recurring replacement costs of $93,600. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $6,815,111. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 1,450,000 Capitalization Rate......................................... 10.07% Estimated total gross valuation of your partnership's property.................................................. 14,400,000 Plus: Cash and cash equivalents............................. 427,469 Plus: Other partnership assets, net of security deposits.... 391,242 Less: Mortgage debt, including accrued interest............. (6,944,876) Less: Accounts payable and accrued expenses................. (221,838) Less: Other liabilities..................................... (22,262) Partnership valuation before taxes and certain costs........ 8,025,735 Less: Disposition fees...................................... (432,000) Less: Extraordinary capital expenditures for deferred maintenance............................................... (418,624) Less: Closing costs......................................... (360,000) Estimated net valuation of your partnership................. 6,815,111 Percentage of estimated net valuation allocated to units.... 99% Estimated net valuation of units............................ 6,746,960 Total number of units............................. 150 Estimated valuation per unit................................ 44,980 ----------- Cash consideration per unit................................. 44,980 -----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $44,980 by the $25 liquidation preference of each Preferred OP Unit to get 1,799.25 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $44,980 by a price of $38.69 to get 1,162.75 Common OP Units S-33 3627 per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $6,815,111 or 1.20% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $47,000 for the nine months ended September 30, 1997 to $240,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. S-34 3628 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $44,980, based on a total estimated value of your partnership's property of $14,400,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,598.50 per year on the number of Preferred OP Units, or distributions of $2,906.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $3,300. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. S-35 3629 The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 3630 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 44,980 Partnership preferred units................................. $ 44,980(1) Partnership common units.................................... $ 44,980(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 44,980 Estimated going concern value............................. $ 42,334 Net book value (deficit).................................. $(14,793) Alternative going concern value........................... $ 43,753(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 3631 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 18%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $42,334 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $(14,793) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $45,116 per unit, going concern value of $44,714 per unit and liquidation value of $42,733 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account S-38 3632 (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $136, $(266) and $(2,247). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 99% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and S-39 3633 analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
RIVERCREST ----------- Total Revenues.............................................. $ 2,816,914 Operating Expenses.......................................... (1,123,200) Replacement Reserves -- Net................................. (230,478) Debt Service................................................ (762,981) Capital Expenditures........................................ (309,600) ----------- Net Cash Flow..................................... $ 390,655 ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget S-40 3634 are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 10.07%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; (iii) extraordinary capital expenditure estimates in the amount of $418,624 and (iv) a 3% fee to the general partner]. Stanger S-41 3635 observed that your partnership liquidation value of $6,815,111 was divided by the total units outstanding of 150 to provide the liquidation value per unit of $44,980. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,450,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $67,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 10.57%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 18%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.6%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 150 to achieve management's estimate of going concern value of $42,334 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $44,980 per unit is equal to management's estimate of liquidation value, and reflects a 5.8% premium to management's estimate of going concern value of $42,518. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net S-42 3636 operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt assuming a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 18% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 18% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (approximately 13% as described above), plus 500 basis points reflecting the additional risk associated with mortgage debt equal to more than 40% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $45,116, $44,714, and $42,733 representing premiums (discounts) to the offer price of .3%, (.5%) and (5.0%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the S-43 3637 partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 3638 YOUR PARTNERSHIP GENERAL Rivercrest Apartments Ltd., is a South Carolina limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in December 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 142 limited partners of your partnership and a total of 150 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on November 30, 1983 for the purpose of owning an apartment property located in Roswell, Georgia, known as "Rivercrest Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1980 and consists of 312 apartment units. Your partnership's property had an average occupancy rate of approximately 94.38% in 1998, 96.47% in 1997 and 96.47% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $418,624 and are intended to be paid for out of cash flow. Renovation items include roofing, heating, ventilation and air conditioning systems, electrical, and exterior paint. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $700 $669 $627 $589 $551
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $186,654 of $4,730,200 of assessed valuation with a current yearly tax rate of 3.95%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 4.02% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your S-45 3639 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve/remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 94% and $713, respectively, at December 31, 1998, compared to 96% and $700, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because the property is located in a strong economic market. In addition, the general partner noted that it expects to spend approximately $418,624 for capital improvements at the property in 1999 to repair and improve the property's heating, ventilation, and air conditioning systems. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $6,727,723, payable to GMAC, which bears interest at a rate of 7.6%. The mortgage debt is due in November 2002. Your partnership S-46 3640 also has a second mortgage note outstanding of $243,117, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $8,887,500 of limited partnership units in 1983 for $296,250 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. According to the private placement memorandum dated October 24, 1983, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the fourth year after the investments were made and had sold all of their properties after seven years of ownership. The private placement memorandum further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the property and that the partnership acquired such property for investment rather than resale. In any event, according to the private placement memorandum, the general partner anticipated that a disposition of the property would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. We do not know why your partnership did not sell all of its properties within such holding period. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2013, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners will not liable to your partnership or limited partners because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's S-47 3641 agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates will be indemnified for any loss or damage resulting from any act or omission performed or omitted in good faith pursuant to the authority granted to promote the interests of your partnership, which does not constitute fraud, gross negligence or willful misconduct. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $296,250.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 0 0 0 0 1995................................... 0 0 0 0 1996................................... 0 0 0 0 1997................................... 0 0 0 0 1998................................... 3,333 5,000 0 123,750 ------ ------ -- -------- Total........................ $3,333 $5,000 $0 $123,750 ====== ====== == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .68% interest in your partnership, including no units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 3642 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $14,778 1995........................................................ 15,217 1996........................................................ 17,000 1997........................................................ 21,000 1998 (through December 31).................................. 12,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1995........................................................ $123,433 1996........................................................ 128,000 1997........................................................ 136,000 1998 (through December 31).................................. 140,847
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 3643 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Rivercrest Apartment Ltd. taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial information which is not included in this Prospectus Supplement. See "Index to Financial Statements."
RIVERCREST APARTMENTS LTD. ------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- IN THOUSANDS, EXCEPT UNIT DATA Cash and Cash Equivalents.............................. $ 538 $ 846 $ 928 $ 460 $ 202 $ 147 $ 162 Land & Building........................................ 16,403 16,039 16,129 15,825 15,609 15,311 15,178 Accumulated Depreciation............................... (7,900) (7,356) (7,491) (6,947) (6,428) (5,926) (5,437) Other Assets........................................... 538 481 488 568 497 459 270 ------- ------- ------- ------- ------- ------- ------- Total Assets................................... $ 9,579 $10,010 $10,054 $ 9,906 $ 9,880 $ 9,991 $10,173 ======= ======= ======= ======= ======= ======= ======= Notes Payable.......................................... $ 6,789 $ 7,046 $ 6,922 $ 7,073 $ 7,209 $ 7,331 $ 7,466 Other Liabilities...................................... 268 219 350 135 144 141 101 ------- ------- ------- ------- ------- ------- ------- Total Liabilities.............................. $ 7,057 $ 7,265 $ 7,272 $ 7,208 $ 7,353 $ 7,472 $ 7,567 ------- ------- ------- ------- ------- ------- ------- Partners Deficit............................... $ 2,522 $ 2,745 $ 2,782 $ 2,698 $ 2,527 $ 2,519 $ 2,606 ======= ======= ======= ======= ======= ======= =======
RIVERCREST APARTMENTS LTD. -------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- ------- ------- --------- ------ -------- ---------- IN THOUSANDS, EXCEPT PER UNIT DATA Rental Revenue............................. $ 1,964 $ 1,937 $ 2,619 $ 2,503 $2,346 $ 2,207 $ 2,064 Other Income............................... 104 92 121 104 106 98 45 --------- ------- ------- --------- ------ -------- ---------- Total Revenue...................... $ 2,068 $ 2,029 $ 2,740 $ 2,607 $2,452 $ 2,305 $ 2,109 --------- ------- ------- --------- ------ -------- ---------- Operating Expenses......................... $ 792 $ 916 $ 1,231 $ 1,065 $1,081 $ 1,027 $ 649 General & Administrative................... 52 50 70 56 59 48 651 Depreciation............................... 409 409 545 519 502 489 479 Interest Expense........................... 444 465 620 636 649 662 610 Property Taxes............................. 131 142 190 160 153 166 164 --------- ------- ------- --------- ------ -------- ---------- Total Expenses..................... $ 1,828 $ 1,982 $ 2,656 $ 2,436 $2,444 $ 2,392 $ 2,554 --------- ------- ------- --------- ------ -------- ---------- Net Income before extraordinary items...... $ 240 $ 47 $ 84 $ 171 $ 8 $ (87) $ (445) Extraordinary Items........................ -- -- -- -- -- -- -- --------- ------- ------- --------- ------ -------- ---------- Net Income (Loss).......................... $ 240 $ 47 $ 84 $ 171 $ 8 $ (87) $ (445) ========= ======= ======= ========= ====== ======== ========== Net Income per limited partnership unit.... $1,584.00 $310.20 $554.40 $1,126.67 $55.85 $(574.35) $(2,937.52) ========= ======= ======= ========= ====== ======== ========== Distributions per limited partnership unit..................................... $3,300.00 $ -- $ -- $ -- $ -- $ -- $ -- ========= ======= ======= ========= ====== ======== ==========
S-50 3644 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $240,000 for the nine months ended September 30, 1998, $47,000 for the nine months ended September 30, 1997. The increase in net income of $193,000 was primarily the result of an increase in rental revenue and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $2,068,000 for the nine months ended September 30, 1998, compared to $2,029,000 for the nine months ended September 30, 1997, a increase of $39,000, or 1.92%. The Partnership increased rental rates by an average of 4.63%. Also there was a slight increase in income from cleaning and damage fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $792,000 for the nine months ended September 30, 1998, compared to $916,000 for the nine months ended September 30, 1997, a decrease of $124,000. The decrease is primarily due to the decrease in maintenance expenses. The property underwent an exterior painting project during the prior period. Partnership property management expenses totaled $104,000 for the nine months ended September 30,1998, compared to $102,000 for the nine months ended September 30,1997, an increase of $2,000, or 1.96%. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $52,000 for the nine months ended September 30, 1998, compared to $50,000 the corresponding period for 1997, an increase of $2,000 or 4%. This increase is due primarily to higher general partner reimbursements. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $444,000 for the nine months ended September 30, 1998, compared to $465,000 for the nine months ended September 30, 1997, a decrease of $21,000, or 4.52%. This decrease is due to a lower principal balance on mortgage indebtedness during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $84,000 for the year ended December 31, 1997, compared to a net income of $171,000 for the year ended December 31, 1996. The decrease in net income of $87,000 was S-51 3645 primarily the result of an increase in operating expenses offset by an increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,740,000 for the year ended December 31, 1997, compared to $2,607,000 for the year ended December 31, 1996, an increase of $133,000, or 5.10%. This increase is due primarily to a 4.63% increase in rental rates. Other Income increased $17,000, or 16.3% from 1996. This increase is largely due to the increase in cleaning and damage fees and late fees. These increases were offset by slight decreases in deposit forfeitures and lease cancellations fees. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,231,000 for the year ended December 31, 1997, compared to $1,065,000 for the year ended December 31, 1996, a increase of $166,000 or 15.59%. The increase is due primarily to higher costs related to exterior repairs and replacement. Management expenses totaled $136,000 for the year ended December 31, 1997 compared to $128,000 for the year ended December 31, 1996, an increase of $8,000, or 6.25%. The increase resulted from an increase in rental revenues as management fees are calculated based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $70,000, an increase of $14,000 for the year ended December 31, 1997, compared to the prior year. This increase is due primarily to higher partnership administrative costs, asset manager fees and increased licenses and permit costs. INTEREST EXPENSE Interest expense totaled $620,000 for the year ended December 31, 1997, compared to $636,000 for the year ended December 31, 1996, a decrease of $16,000, or 2.52%. The decrease is the result of a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership had net income of $171,000 for the year ended December 31, 1996, compared to net income of $8,000 for the year ended December 31, 1995. The increase in net income of $163,000 was primarily the result of an increase in rental revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,607,000 for the year ended December 31, 1996, compared to $2, 452,000 for the year ended December 31, 1995, an increase of $155,000, or 6.32%. This increase is primarily due to a 6.70% increase in average rental rates, while occupancy remained stable. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,065,000 for the year ended December 31, 1996, compared to $1,081,000 for the year ended December 31, 1995, a decrease of $16,000 or 1.48%. This decrease is due to a decrease in all advertising costs. Management expenses decreased approximately 8.18% from prior year. S-52 3646 INTEREST EXPENSE Interest expense totaled $636,000 for the year ended December 31, 1996, compared to $649,000 for the year ended December 31, 1995, a decrease of $13,000, or 2.0%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $538,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $6,789,000. The mortgage requires monthly payments of approximately $64,000 until October, 2002, with a balloon payment of approximately $5,909,0000 due in November 2002. The note is collateralized by pledge of land and buildings and all rents of the property. The note has a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 3647 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 150 units of your partnership (up to 37.5 units) for consideration per unit of (i) 1,799.25 Preferred OP Units, (ii) 1,162.75 Common OP Units, or (iii) $44,980 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 3648 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 3649 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 3650 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 3651 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 3652 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 3653 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 3654 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 3655 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 3656 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 3657 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 3658 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 3659 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 3660 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 3661 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 3662 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 3663 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 3664 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2013. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating operate, lease, and manage your Partnership is to conduct any business that partnership's property for investment, may be lawfully conducted by a limited capital appreciation and the production of partnership organized pursuant to the income. Subject to restrictions contained in Delaware Revised Uniform Limited Part- your partnership's agreement of limited nership Act (as amended from time to time, partnership, your partnership may do all or any successor to such statute) (the things necessary for or incidental to the "Delaware Limited Partnership Act"), protection and benefit of your partnership, provided that such business is to be including, without limitation, borrowing conducted in a manner that permits AIMCO to funds and creating liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 3665 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partners of your partnership are The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 150 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or not enter into agreements with itself or any contribute funds or other assets to its of its affiliates for services, except for subsidiaries or other persons in which it agreements for the man- has an equity investment,
S-72 3666 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agement and operations of your partnership's and such persons may borrow funds from the property and other such agreements set forth AIMCO Operating Partnership, on terms and in your partnership's agreement of limited conditions established in the sole and partnership. In addition, your partnership absolute discretion of the general partner. is not allowed to make loans to the partner. To the extent consistent with the business However, the general partner may, and in purpose of the AIMCO Operating Partnership certain circumstances are required to, lend and the permitted activities of the general money to your partnership as the general partner, the AIMCO Operating Partnership may partner deem necessary for the payment of transfer assets to joint ventures, limited any partnership obligations and expenses, liability companies, partnerships, which loans, will be repaid with interest at corporations, business trusts or other the rate of 1% per annum over the then business entities in which it is or thereby prevailing prime rate of The Citizens and becomes a participant upon such terms and Southern National Bank of South Carolina for subject to such conditions consistent with short-term, unsecured loans (but in no event the AIMCO Operating Partnership Agreement to exceed the maximum legal rate) from the and applicable law as the general partner, first available cash and prior to any in its sole and absolute discretion, distributions to the limited partners; believes to be advisable. Except as provided, however, that the managing general expressly permitted by the AIMCO Operating partner must first make reasonable efforts Partnership Agreement, neither the general to secure loans from an unaffiliated third partner nor any of its affiliates may sell, party. transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partners of your partnership are The AIMCO Operating Partnership Agreement authorized, on behalf of your partnership, contains no restrictions on borrowings, and to borrow funds, execute and issue mortgage the general partner has full power and notes and other evidences of indebtedness authority to borrow money on behalf of the and secure such indebtedness by mortgage, AIMCO Operating Partnership. The AIMCO deed of trust, pledge or other lien; Operating Partnership has credit agreements provided, however, that a refinancing of that restrict, among other things, its your partnership's property will be in the ability to incur indebtedness. sole discretion of the managing general partner.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP review the books and records of your Unitholder's own expense, to obtain a partnership upon reasonable notice during current list of the name and last known business hours at the registered office of business, residence or mailing address of your partnership at such limited partners' the general partner and each other OP expense. Unitholder.
Management Control The general partner of your partnership is All management powers over the business and responsible for and direct the management of affairs of the AIMCO Operating Partnership your partnership's business and assets and are vested in AIMCO-GP, Inc., which is the has all rights and powers generally general partner. No OP Unitholder has any conferred by law or which are necessary, right to participate in or exercise control advisable or consistent in connection or management power over the business and therewith, subject to the limitations affairs of the AIMCO Operating Partner- contained in your partnership's agreement of ship. The OP Unitholders have the right to limited partnership. vote on
S-73 3667 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP No limited partner has the right to take certain matters described under "Comparison part in or interfere in any manner with the of Your Units and AIMCO OP Units -- Voting conduct or control of the business of your Rights" below. The general partner may not partnership or the right or authority to act be removed by the OP Unitholders with or for or bind your partnership. without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership are not liable to your Agreement, the general partner is not liable partnership or the limited partners and are to the AIMCO Operating Partnership for indemnified for any loss or damage resulting losses sustained, liabilities incurred or from any act or omission performed or benefits not derived as a result of errors omitted in good faith, which does not in judgment or mistakes of fact or law of constitute fraud, gross negligence or any act or omission if the general partner willful misconduct, pursuant to the acted in good faith. The AIMCO Operating authority granted to them to promote the Partnership Agreement provides for interests of your partnership. Moreover, the indemnification of AIMCO, or any director or general partner is not liable to your officer of AIMCO (in its capacity as the partnership of the limited partner because previous general partner of the AIMCO any taxing authorities disallow or adjust Operating Partnership), the general partner, any deduction or credits in your partnership any officer or director of general partner income tax returns. or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions
S-74 3668 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner upon a vote the business and affairs of the AIMCO of the limited partners owning more than 50% Operating Partnership. The general partner of the units. A general partner may resign may not be removed as general partner of the at any time; provided, however that such AIMCO Operating Partnership by the OP resignation does not cause the default under Unitholders with or without cause. Under the or result in the acceleration of the payment AIMCO Operating Partnership Agreement, the of any loan secured by your partnership's general partner may, in its sole discretion, property. The affirmative vote or written prevent a transferee of an OP Unit from consent of the limited partners holding a becoming a substituted limited partner majority of the outstanding units are re- pursuant to the AIMCO Operating Partnership quired for the election and admission of a Agreement. The general partner may exercise substitute general partner. A limited this right of approval to deter, delay or partners may not transfer its units without hamper attempts by persons to acquire a the written consent of the managing general controlling interest in the AIMCO Operating partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to effect a ministerial change which Agreement, whereby the general partner may, does not materially affect the rights of the without the consent of the OP Unitholders, limited partners and as required by law. All amend the AIMCO Operating Partnership other amendments must be approved by the Agreement, amendments to the AIMCO Operating limited partners owning more than 50% of the Partnership Agreement require the consent of units, the general partner and, amendments the holders of a majority of the outstanding that will adversely affect the rights or Common OP Units, excluding AIMCO and certain interests of any general partner, by such other limited exclusions (a "Majority in general partner. Limited partners owning at Interest"). Amendments to the AIMCO least 20% of the units have the power to Operating Partnership Agreement may be propose amendments to the agreement. proposed by the
S-75 3669 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives 1/4 of 1% of the gross operating its capacity as general partner of the AIMCO revenue of your partnership's property as a Operating Partnership. In addition, the partnership administration fee. Moreover, AIMCO Operating Partnership is responsible the general partner or certain affiliates for all expenses incurred relating to the may be entitled to compensation for addi- AIMCO Operating Partnership's ownership of tional services rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner, unless it is deemed to Except for fraud, willful misconduct or be taking part in the control of the gross negligence, no OP Unitholder has business, is bound by, or is personally personal liability for the AIMCO Operating liable for the expenses, liabilities or Partnership's debts and obligations, and obligation of your partnership and his liability of the OP Unitholders for the liability is limited solely to the amount of AIMCO Operating Partnership's debts and his capital contribution to your obligations is generally limited to the partnership, together with the undistributed amount of their investment in the AIMCO share of the profits of your partnership Operating Partnership. However, the form time to time credited to its capital limitations on the liability of limited account and any money or other property partners for the obligations of a limited wrongfully paid or conveyed to him on partnership have not been clearly account of his contribution, including but established in some states. If it were not limited to money or property to which determined that the AIMCO Operating Part- creditors were legally entitled, paid or nership had been conducting business in any conveyed to a limited partner, and under state without compliance with the applicable certain circumstances, interest on returned limited partnership statute, or that the capital. right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-76 3670 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties The general partner of your partnership Unless otherwise provided for in the possess an overriding fiduciary obligation relevant partnership agreement, Delaware law to your partnership. However, the general generally requires a general partner of a partner is not required to devote all of its Delaware limited partnership to adhere to time or business efforts to the affairs of fiduciary duty standards under which it owes your partnership, but it must devote so much its limited partners the highest duties of of its time and attention to your good faith, fairness and loyalty and which partnership as is necessary and advisable to generally prohibit such general partner from successfully manage the affairs of your taking any action or engaging in any partnership. In addition, any partner may transaction as to which it has a conflict of engage in or possess an interest in other interest. The AIMCO Operating Partnership business ventures of every nature and Agreement expressly authorizes the general description, whether such ventures are partner to enter into, on behalf of the competitive with your partnership or AIMCO Operating Partnership, a right of otherwise, including but not limited to, the first opportunity arrangement and other acquisition, ownership, financing, leasing, conflict avoidance agreements with various operation, management, syndication, affiliates of the AIMCO Operating brokerage, sale, construction and Partnership and the general partner, on such development of real property, which may be terms as the general partner, in its sole located in the market area or vicinity of and absolute discretion, believes are your partnership's property, and neither advisable. The AIMCO Operating Partnership your partnership nor the partner will have Agreement expressly limits the liability of any rights in or to such independent the general partner by providing that the ventures or to income or profits derived general partner, and its officers and therefrom. directors will not be liable or accountable in damages to the AIMCO Operating In general, your partnership's agreement of Partnership, the limited partners or as- limited partnership and the AIMCO Operating signees for errors in judgment or mistakes Partnership Agreement have limitations on of fact or law or of any act or omission if the liability of the general partner but the general partner or such director or such limitations differ and provide more officer acted in good faith. See protection for the general partner of the "Description of OP Units -- Fiduciary AIMCO Operating Partnership. Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to
S-77 3671 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-78 3672 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the limited AIMCO Operating Partnership OP Unitholders have voting partners have voting rights Agreement, the holders of rights only with respect to only with respect to the the Preferred OP Units will certain limited matters such following issues: sale or have the same voting rights as certain amendments and other disposition of your as holders of the Common OP termination of the AIMCO partnership's property, Units. See "Description of Operating Partnership material amendments to your OP Units" in the accompany- Agreement and certain partnership's agreement of ing Prospectus. So long as transactions such as the limited partnership, any Preferred OP Units are institution of bankruptcy termination of your outstanding, in addition to proceedings, an assignment partnership, removal of a any other vote or consent of for the benefit of creditors general partner, election partners required by law or and certain transfers by the and admission of a by the AIMCO Operating general partner of its substitute general partner Partnership Agreement, the interest in the AIMCO and election of a trustee to affirmative vote or consent Operating Partnership or the liquidate and distribute of holders of at least 50% admission of a successor your partnership's assets of the outstanding Preferred general partner. upon retirement of the last OP Units will be necessary remaining general partner. for effecting any amendment Under the AIMCO Operating Each matter requires the of any of the provisions of Partnership Agreement, the majority vote of the holders the Partnership Unit general partner has the of units for approval. The Designation of the Preferred power to effect the consent of the general OP Units that materially and acquisition, sale, transfer, partner is required to sell adversely affects the rights exchange or other your partnership's property, or preferences of the disposition of any assets of to amend your partnership's holders of the Preferred OP the AIMCO Operating agreement of limited Units. The creation or Partnership (including, but partnership and to terminate issuance of any class or not limited to, the exercise your partnership. series of partnership units, or grant of any conversion, including, without option, privilege or A general partner may cause limitation, any partner- subscription right or any the dissolution of your ship units that may have other right available in partnership by retiring rights senior or superior to connection with any assets unless, the remaining the Preferred OP Units, at any time held by the general partner, or if none, shall not be deemed to AIMCO Operating Partnership) all of the limited partners, materially adversely affect or the merger, agree to continue your the rights or preferences of consolidation, partnership and elect a the holders of Preferred OP reorganization or other successor general partner by Units. With respect to the combination of the AIMCO the affirmative vote of the exercise of the above Operating Partnership with limited partners holding a described voting rights, or into another entity, all majority of the outstanding each Preferred OP Units without the consent of the units. shall have one (1) vote per OP Unitholders. Preferred OP Unit. In general, you have greater The general partner may voting rights in your cause the dissolution of the partnership than you will AIMCO Operating Partnership have as an OP Unitholder. OP by an "event of withdrawal," Unitholders can not remove as defined in the Delaware the general partner of the Limited Partnership Act AIMCO Operating Partnership. (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in
S-79 3673 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash from at the rate of $0.50 per or such portion as the Operations are to be Preferred OP Unit; provided, general partner may in its distributed no less often however, that at any time sole and absolute discretion than quarterly. The dis- and from time to time on or determine, of Available Cash tributions payable to the after the fifth anniversary (as defined in the AIMCO partners are not fixed in of the issue date of the Operating Partnership amount and depend upon the Preferred OP Units, the Agreement) generated by the operating results and net AIMCO Operating Partnership AIMCO Operating Partnership sales or refinancing pro- may adjust the annual during such quarter to the ceeds available from the distribution rate on the general partner, the special disposition of your Preferred OP Units to the limited partner and the partnership's assets. lower of (i) 2.00% plus the holders of Common OP Units annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special lim- original issue. Holders of Preferred
S-80 3674 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units will not be ited partner and holders of entitled to receive any Common OP Units with respect distributions in excess of to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his limited for the Preferred OP Units for the OP Units. The AIMCO partnership interest to any and the Preferred OP Units Operating Partnership person provided that: (1) are not listed on any Agreement restricts the such transfer is not in securities exchange. The transferability of the OP contravention of any Preferred OP Units are Units. Until the expiration applicable law or subject of
S-81 3675 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
your partnership's agreement to restrictions on transfer one year from the date on of limited partnership, (ii) as set forth in the AIMCO which an OP Unitholder a duly executed and Operating Partnership acquired OP Units, subject acknowledged assignment has Agreement. to certain exceptions, such been approved by the general OP Unitholder may not partners and (iii) the Pursuant to the AIMCO transfer all or any por- transferee represents in Operating Partnership tion of its OP Units to any writing that it satisfies Agreement, until the transferee without the the suitability re- expiration of one year from consent of the general quirements for limited the date on which a holder partner, which consent may partners. In order for a of Preferred OP Units be withheld in its sole and transferee to be substituted acquired Preferred OP Units, absolute discretion. After as a limited partner, in subject to certain the expiration of one year, addition to the above exceptions, such holder of such OP Unitholder has the requirements: (1) the Preferred OP Units may not right to transfer all or any assignee must execute an transfer all or any portion portion of its OP Units to irrevocable power of of its Preferred OP Units to any person, subject to the attorney appointing the any transferee without the satisfaction of certain con- general partners as the consent of the general ditions specified in the assignee's attor- partner, which consent may AIMCO Operating Partnership ney-in-fact, (2) the be withheld in its sole and Agreement, including the transfer fee is paid, (3) absolute discretion. After general partner's right of the interest transferred is the expiration of one year, first refusal. See not less than one unit or such holders of Preferred OP "Description of OP Units -- such lesser amount owned by Units has the right to Transfers and Withdrawals" the assignor and (4) such transfer all or any portion in the accompanying other conditions as are set of its Preferred OP Units to Prospectus. forth in your partnership's any person, subject to the agreement of limited satisfaction of certain After the first anniversary partnership must be conditions specified in the of becoming a holder of fulfilled. AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, There are no redemption the general partner's right subject to the terms and rights associated with your of first refusal. conditions of the AIMCO units. Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on
S-82 3676 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the Preferred OP Units Stock, based on an exchange tendered for redemption; ratio of one share of Class provided that such shares A Common Stock for each Com- are part of a class or mon OP Unit, subject to series of preferred stock adjustment as provided in that is then listed on the the AIMCO Operating NYSE or another national Partnership Agreement. securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 3677 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 3678 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 3679 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 3680 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 3681 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 3682 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 3683 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 3684 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 3685 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 3686 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual management fee and may also receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $17,000 in 1996, $21,000 in 1997 and $12,000 in 1998. The property manager received management fees of $128,000 in 1996, $136,000 in 1997 and $140,000 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 3687 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,686,750 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $5,000 Accountant's Fees........................................... $5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $9,000 Other....................................................... $11,000 ------ Total............................................. $50,000 ======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate, at the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 3688 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Rivercrest Apartments, Ltd. at December 31, 1997, and for the year then ended, as set forth in their report. We've included the financial statements of Rivercrest Apartments, Ltd. in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-95 3689 RIVERCREST APARTMENTS, LTD. INDEX TO FINANCIAL STATEMENTS Condensed Balance Sheet -- as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations -- for the nine months ended September 30, 1998 and 1997 (Unaudited)............. F-3 Condensed Statements of Cash Flows -- for the nine months ended September 30, 1998 and 1997 (Unaudited)............. F-4 Note A -- Basis of Presentation (unaudited)................. F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Partners' Capital/(deficit) for the year ended December 31, 1997......................................... F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Balance sheet as of December 31, 1996 (unaudited)........... F-16 Statement of Operations for the year ended December 31, 1996 (unaudited)............................................... F-17 Statement of Partners' Capital/(Deficit) for the year ended December 31, 1996 (unaudited)............................. F-18 Statement of Cash Flows for the year ended December 31, 1996 (unaudited)............................................... F-19 Notes to Financial Statements (unaudited)................... F-20
F-1 3690 RIVERCREST APARTMENTS LTD. CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 538,370 Receivables and deposits.................................... 145,924 Restricted escrows.......................................... 345,736 Other assets................................................ 46,325 Investment property: Land...................................................... $ 1,292,618 Building and related personal property.................... 15,110,209 ----------- 16,402,827 Less: Accumulated depreciation............................ (7,899,841) 8,502,986 ----------- ---------- Total Assets...................................... $9,579,341 ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 9,161 Accrued liabilities......................................... 79,153 Property taxes payable...................................... 131,128 Tenant security deposits.................................... 49,186 Notes payable............................................... 6,788,690 Partners' capital................................. 2,522,023 ---------- Total liabilities and partners' capital........... $9,579,341 ==========
See accompanying note. F-2 3691 RIVERCREST APARTMENTS LTD. CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,964,006 $1,936,516 Other income.............................................. 104,022 92,345 ---------- ---------- Total revenues.................................... 2,068,028 2,028,861 Expenses: Operating expenses........................................ 792,438 915,695 General and administrative expenses....................... 51,601 50,236 Depreciation expense...................................... 408,750 408,750 Interest expense.......................................... 444,092 465,000 Property tax expense...................................... 131,344 142,316 ---------- ---------- Total expenses.................................... 1,828,225 1,981,997 ---------- ---------- Net income.................................................. $ 239,803 $ 46,864 ========== ==========
See accompanying note. F-3 3692 RIVERCREST APARTMENTS LTD. CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 --------- --------- Operating activities: Net income................................................ $ 239,803 $ 46,864 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization............................. 446,912 541,851 Changes in accounts: Receivables and deposits and other assets.............. (46,621) 93,059 Accounts Payable and accrued expenses.................. (81,464) 84,158 --------- --------- Net cash provided by operating activities......... 558,630 765,932 --------- --------- Investing activities Property improvements and replacements.................... (273,384) (214,661) Net decrease in restricted escrows........................ (8,039) (11,182) --------- --------- Net cash used in investing activities..................... (281,423) (225,843) --------- --------- Financing activities Payments on mortgage...................................... (166,306) (154,172) Partners' Distributions................................... (500,000) -- --------- --------- Net cash used in financing activities..................... (666,306) (154,172) --------- --------- Net increase (decrease) in cash and cash equivalents...... (389,099) 385,917 Cash and cash equivalents at beginning of year............ 927,469 460,027 --------- --------- Cash and cash equivalents at end of period................ $ 538,370 $ 845,944 ========= =========
See accompanying note. F-4 3693 RIVERCREST APARTMENTS LTD. NOTE TO FINANCIAL STATEMENTS -- UNAUDITED NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Rivercrest Apartments Ltd. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 3694 REPORT OF INDEPENDENT AUDITORS The Partners Rivercrest Apartments, Ltd. We have audited the accompanying balance sheet of Rivercrest Apartments, Ltd. (the "Partnership") as of December 31, 1997 and the related statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rivercrest Apartments, Ltd., at December 31, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 3695 RIVERCREST APARTMENTS, LTD. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 928 Receivables and deposits.................................... 94 Restricted escrows.......................................... 338 Other assets................................................ 56 Investment property (Notes B and D): Land...................................................... $ 1,259 Buildings and related personal property................... 14,870 ------- 16,129 Less accumulated depreciation............................... (7,491) 8,638 ------- ------- $10,054 ======= LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 222 Tenant security deposit liability......................... 54 Other liabilities......................................... 74 Mortgage note payable (Note B)............................ 6,922 ------- 7,272 Partners' capital/(deficit): General partners.......................................... $ (60) Limited partners (150 units issued and outstanding)....... 2,842 2,782 ------- ------- $10,054 =======
See accompanying notes. F-7 3696 RIVERCREST APARTMENTS, LTD. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 2,619 Other income.............................................. 121 ------- 2,740 Expenses: Operating................................................. $1,231 General and administrative................................ 70 Depreciation.............................................. 545 Interest.................................................. 620 Property taxes............................................ 190 2,656 ------ ------- Net income.................................................. $ 84 ======= Net income allocated to general partners (1%)............... $ 1 Net income allocated to limited partners (99%).............. 83 ------- $ 84 ======= Net income per limited partnership unit..................... $554.40 =======
See accompanying notes. F-8 3697 RIVERCREST APARTMENTS, LTD. STATEMENT OF CHANGES IN PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Capital/(deficit) at December 31, 1996...................... $(61) $2,759 $2,698 Net income................................................ 1 83 84 ---- ------ ------ Capital/(deficit) at December 31, 1997...................... $(60) $2,842 $2,782 ==== ====== ======
See accompanying notes. F-9 3698 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 84 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 545 Amortization of loan costs and mortgage discount....... 66 Change in operating assets and liabilities: Receivables and deposits............................. 100 Other assets......................................... (10) Accounts payable..................................... 207 Tenant security deposit liabilities.................. (6) Other liabilities.................................... 14 ------ Net cash provided by operating activities................. 1,000 Cash flows used in investing activities Property improvements and replacements.................... (305) Deposits to restricted escrows............................ (19) ------ Net cash used in investing activities..................... (324) Cash flows used in financing activities Principal payments on mortgage notes payable.............. (208) ------ Net increase in cash...................................... 468 Cash and cash equivalents at December 31, 1996............ 460 ------ Cash and cash equivalents at December 31, 1997............ $ 928 ====== Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 555 ======
See accompanying notes. F-10 3699 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. One hundred and fifty limited partnership units were issued. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long-term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Loan Costs Loan costs of approximately $88,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $45,000 at December 31, 1997. These costs are included in "Other Assets". F-11 3700 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrow The Reserve Escrow was established to cover necessary repairs and replacements of existing improvements, debt service, and out-of-pocket expenses incurred for ordinary and necessary administrative tasks and payment of real estate taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until the reserve account equals $1,000 per apartment unit or $312,000 in total. At December 31, 1997, the balance in this reserve account is approximately $338,000, which includes interest earned on such funds. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. NOTE B -- LONG-TERM DEBT Long-term debt consists of the following:
(IN THOUSANDS) -------------- First Mortgage -- payable in monthly installments of approximately $62,000 including interest at 7.60% to October 2002, with a balloon payment of approximately $5,666,000 due in November 2002. The note is collateralized by pledge of land and building and all rents of the property..................................... $6,952 Second Mortgage -- payable in monthly installments of approximately $2,000 interest only at 7.60% to October 2002, with a balloon payment of approximately $243,000 due in November 2002. The note is collateralized by pledge of land and buildings and all rents of the property.......... 243 ------ 7,195 Less unamortized discount................................... (273) ------ Mortgage notes payable at December 31, 1997................. $6,922 ======
F-12 3701 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $564,000 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1997 are as follows (in thousands): 1998....................................................... $ 224 1999....................................................... 241 2000....................................................... 261 2001....................................................... 281 2002....................................................... 6,188 ------ $7,195 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $136 Reimbursements for services of affiliates................... 21
For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ----------- ------------- Rivercrest Apartments Roswell, Georgia............................. $7,195 $1,259 $12,047 $2,823 ====== ====== ======= ======
F-13 3702 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ------ ----------- ------- ------------ -------- ------------- Rivercrest Apartments, Roswell, Georgia.......... $1,259 $14,870 $16,129 $7,491 11/01/83 5-30 ====== ======= ======= ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $15,824 Property improvements..................................... 305 ------- Balance at end of year.................................... $16,129 ======= Accumulated Depreciation Balance at beginning of year.............................. $ 6,946 Additions charged to expense.............................. 545 ------- Balance at end of year.................................... $ 7,491 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $16,129,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $13,358,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 84 Add (deduct): Depreciation differences.................................. (194) Rental Income............................................. 14 Other..................................................... 3 ------- Net loss -- Federal income tax basis........................ $ (93) ======= Federal taxable loss per limited partnership unit........... $613.80 =======
F-14 3703 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported...................................... $ 2,782 Accumulated depreciation.................................... (5,867) Syndication fees............................................ 841 Other....................................................... 25 ------- Net deficiency -- tax basis................................. $(2,219) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3704 RIVERCREST APARTMENTS, LTD. BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents:.................................. $ 460 Receivables and deposits.................................... 194 Restricted escrow........................................... 319 Other assets................................................ 55 Investment property (Notes B and C): Land...................................................... $ 1,259 Building and improvements................................. 14,566 ------- 15,825 Less accumulated depreciation............................. (6,947) 8,878 ------- ------ $9,906 ====== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 15 Other liabilities......................................... 60 Tenant security deposits payable.......................... 60 Mortgage note payable (Note C)............................ 7,073 ------ 7,208 Partners' capital/(deficit): General partners.......................................... $ (61) Limited partners (150 units issued and outstanding)....... 2,759 2,698 ------- ------ $9,906 ======
See accompanying notes. F-16 3705 RIVERCREST APARTMENTS, LTD. STATEMENT OF INCOME (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 2,503 Other income.............................................. 104 --------- 2,607 Expenses: Operating................................................. $1,065 General and administrative................................ 56 Depreciation.............................................. 519 Interest.................................................. 636 Property taxes............................................ 160 2,436 ------ --------- Net income........................................ $ 171 ========= Net income allocated to general partners (1%)..... $ 2 Net income allocated to limited partners (99%).... 169 --------- $ 171 ========= Net income per limited partnership unit:.......... $1,126.67 =========
See accompanying notes. F-17 3706 RIVERCREST APARTMENTS, LTD. STATEMENT OF PARTNERS' CAPITAL/(DEFICIT) (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------ Partners' capital/(deficit) at December 31, 1995............ $2,590 $(63) $2,527 Net income................................................ 169 2 171 ------ ---- ------ Partners' capital/(deficit) at December 31, 1996............ $2,759 $(61) $2,698 ====== ==== ======
See accompanying notes. F-18 3707 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $171 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 519 Amortization of loan costs and mortgage discount....... 65 Changes in assets and liabilities: Receivables and deposits and other assets............ (82) Accounts payable and other liabilities............... (9) ---- Net cash provided by operating activities......... 664 Cash flows from investing activities Net deposits to restricted escrows........................ 2 Property improvements and replacements.................... (216) ---- Net cash used in investing activities............. (214) Cash flows from financing activities Principal payments on mortgage note payable............... (192) ---- Net cash used in financing activities..................... (192) ---- Increase in cash and cash equivalents..................... 258 Cash and cash equivalents at December 31, 1995............ 202 ---- Cash and cash equivalents at December 31, 1996............ $460 ==== Supplemental disclosure of cash flow information: Cash paid for interest.................................... $570 ====
See accompanying notes. F-19 3708 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. One hundred and fifty limited partnership interests were issued. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-20 3709 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan and are included in other assets. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1996 was approximately $319,000. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND COST CAPITALIZED RELATED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ------ ---------------- ---------------- Rivercrest Apartments..................... $7,073 $1,259 $12,047 $2,519 ====== ====== ======= ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ------ ------------- ------- ------------ -------- ----------- Rivercrest Apartments........ $1,259 $14,566 $15,825 $6,947 11/1/83 5-30 ====== ======= ======= ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. F-21 3710 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year................................ $15,609 Property improvements....................................... 216 ------- Balance at end of year...................................... $15,825 ======= Accumulated Depreciation Balance at beginning of year................................ $ 6,428 Additions charged to expense................................ 519 ------- Balance at end of year...................................... $ 6,947 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $ 15,825,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is approximately $12,620,000. NOTE C -- MORTGAGE NOTE PAYABLE Long-term debt consists of the following (dollar amounts in thousands): First Mortgage -- payable in monthly installments of approximately $62, including interest at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collaterized by pledge of land and building and all rents of the property........................................... $7,159 Second Mortgage -- payable in monthly installments of approximately $2, interest only at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and buildings and all rents of the property..................................... 243 ------ 7,402 Less unamortized discount................................... (329) ------ Mortgage notes payable at December 31, 1996................. $7,073 ======
The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. When the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to approximately $564,000 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Principal maturities of the mortgage note payable at December 31, 1996 are as follows (in thousands): 1997........................................................ $ 208 1998........................................................ 224 1999........................................................ 241 2000........................................................ 261 2001........................................................ 281 Thereafter.................................................. 6,187 ------ $7,402 ======
F-22 3711 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE D -- RELATED PARTY TRANSACTIONS Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $128 Reimbursements for services of affiliates................... $ 17
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except unit data): Net income as reported...................................... $ 171 Deduct: Depreciation differences.................................. (186) -------- Federal taxable loss........................................ $ (15) ======== Federal taxable loss per limited partnership unit........... $(100.00) ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported...................................... $ 2,698 Accumulated depreciation.................................... (5,673) Other liabilities........................................... 8 Syndication and distribution costs.......................... 841 ------- Net liabilities -- tax basis................................ $(2,126) =======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc. an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-23 3712 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 3713 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 3714 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 3715 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3716 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3717 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3718 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3719 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3720 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3721 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3722 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3723 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3724 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3725 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3726 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3727 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3728 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3729 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3730 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3731 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3732 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3733 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3734 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3735 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3736 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3737 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3738 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3739
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3740 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3741
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3742 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3743 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3744 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3745
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3746 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3747 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3748 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3749
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3750 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3751 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3752 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3753 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3754 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3755 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3756 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3757 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3758 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3759 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3760 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3761 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3762 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Rivercrest Apartments Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Rivercrest Apartments Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $44,980 in cash, or 1,162.75 Common OP Units of the Purchaser, or 1,799.25 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3763 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general party to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3764 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3765 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3766
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3767
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3768
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3769
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3770 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3771 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Salem Arms of Augusta Limited Partnership in exchange for your choice of: 4.75 of our 8.0% Class Two Partnership Preferred Units; 3.25 of our Partnership Common Units; or $117 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $117 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3772 TABLE OF CONTENTS
PAGE ---- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-16 Summary Financial Information of AIMCO Properties, L.P............................ S-17 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-19 Summary Financial Information of Salem Arms of Augusta Limited Partnership............. S-21 Comparative Per Unit Data.................... S-21 THE AIMCO OPERATING PARTNERSHIP................ S-22 RISK FACTORS................................... S-23 Risks to Unitholders Who Tender Their Units in the Offer............................... S-23 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-23 Offer Consideration May Not Equal the Value of Your Units............................ S-23 Conflicts of Interest with Respect to the Offer.................................... S-23 Possible Subsequent Offer at a Higher Price.................................... S-23 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-24 Holding Units May Result in Greater Future Value.................................... S-24 Offer Consideration May Not Represent Fair Market Value............................. S-24 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-24 Offer Consideration May Be Less Than Liquidation Value........................ S-24 Fairness Opinion of Third Party Relied on Information We Provided.................. S-24 Loss of Future Distributions from Your Partnership.............................. S-25 Possible Effect of the Other Exchange Offers on Us............................. S-25 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-25 Fundamental Change in Nature of Investment............................... S-25 Fundamental Change in Number of Properties Owned.................................... S-25 Lack of Trading Market for OP Units........ S-25 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-26 Limitations on Effecting a Change of Control.................................. S-26 Limitation on Transfer of OP Units......... S-26 Limited Voting Rights of Holders of OP Units.................................... S-26 Market Prices for AIMCO's Securities May Fluctuate................................ S-26 Litigation Associated with Partnership Acquisitions............................. S-26 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26
PAGE ---- Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-27 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-27 Risk of Inability to Transfer Units for 12-Month Period.......................... S-27 Possible Change in Time Frame Regarding Sale of Property......................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-28 Background of the Offer...................... S-28 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-45 Compensation and Material Relationships...... S-46 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-49 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-50 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF SALEM ARMS OF AUGUSTA...................................... S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59 Extension of Tender Period; Termination; Amendment.................................. S-59 Prorations................................... S-60 Fractional OP Units.......................... S-60
i 3773
PAGE ---- Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ---- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3774 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Corporation, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-23 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $2,568,000, less approximately $298,378 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 3775 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3776 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2014 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 3777 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 3778 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 3779 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in August 2012. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis, but will have to sell its property or refinance its indebtedness to pay such balloon payments.] In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 3780 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $9.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $8.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 3781 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3782 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.50% per annum, which resulted in an increase from the initial capitalization rate of 0.50%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.00%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ 282,000 Capitalization rate......................................... 11.00% ----------- Estimated gross valuation of your partnership's property(1)............................................... $ 2,568,000 Plus: Cash and cash equivalents............................. 169,663 Plus: Other partnership assets, net of security deposits.... 115,865 Less: Mortgage debt, including accrued interest............. (1,301,124) Less: Notes payable, including accrued interest............. (8,584) Less: Accounts payable and accrued expenses................. (13,489) ----------- Less: Other liabilities..................................... 1,530,331 Partnership valuation before taxes and certain costs........ 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (298,378) Less: Closing costs......................................... (64,200) ----------- Estimated net valuation of your partnership................. 1,167,753 Percentage of estimated net valuation allocated to units.... 95.00% ----------- Estimated net valuation of units............................ 1,109,365 Total number of units............................. 9,500.0 ----------- Estimated valuation per unit................................ 117 =========== Cash consideration per unit................................. $ 117 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $117 by the $25 liquidation preference of each Preferred OP Unit to get 4.75 Preferred OP Units per unit. S-9 3783 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $117 by a price of $38.69 to get 3.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 117 Partnership Preferred Units................................. $ 117 Partnership Common Units.................................... $ 117 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 117 Estimated going concern value............................. $ 113 Net book value (deficit).................................. $(26.94)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a S-10 3784 financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Salem Arms of Augusta Limited Partnership is a limited partnership which was formed on July 10, 1974 for the purpose of owning and operating a single apartment property located in Augusta, Georgia, known as "Salem Arms of Augusta." Salem Arms of Augusta consists of 136 units and was built in 1971. Your partnership has no employees. As of September 30, 1998, there were 9,500 units of limited partnership interest issued and outstanding, which were held of record by 15 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold limited partnership units in 1974. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $3.99 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2014, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $1,244,408, payable to Reilly Mortgage, which bears interest at the rate of 8.50%. The mortgage debt is due in August 2012. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner owed no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 3785 THE OFFER In exchange for each of your units, we are offering you a choice of: - 4.75 of our Class Two Partnership Preferred Units; - 3.25 of our Partnership Common Units; or - $117 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. A unit for purposes of this offer represents a 1% interest in your partnership. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 9,500 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 4.75 Preferred OP Units, 3.25 Common OP Units, or $117 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. S-12 3786 Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. S-13 3787 Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and S-14 3788 liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $117 in cash, 4.75 Preferred OP Units or 3.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $117. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $7,325 for the fiscal year ended December 31, 1998. The property manager received management fees of $50,711 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. S-15 3789 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $277,875 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-16 3790 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-17 3791
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-18 3792 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-19 3793
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-20 3794 SUMMARY FINANCIAL INFORMATION OF SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP The summary financial information of Salem Arms of Augusta Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Salem Arms of Augusta Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. The financial statements for 1995, 1994, and 1993 are not included in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Operating Data: Total Revenues...................................... $ 567 $ 568 $ 786 $ 729 $ 773 $ 766 $ 721 Net Income.......................................... $ 81 $ 79 $ 54 $ 82 $ 134 $ 98 $ 77 Net Income per limited partnership unit............. $ 8.05 $ 7.80 $ 5.44 $ 8.22 $ 13.44 $ 9.88 $ 7.72 Distributions per limited partnership unit.......... $ -- $ -- $ 0.39 $ 0.42 $ 2.99 $ -- $ -- Distributions per limited partnership unit (which represent a return of capital).................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Balance Sheet Data: Cash and Cash Equivalents........................... $ 249 $ 206 $ 88 $ 162 $ 105 $ 120 $ 55 Real Estate Net of Accumulated Depreciation......... $ 751 $ 783 $ 775 $ 757 $ 772 $ 772 $ 733 Total Assets........................................ $ 1,145 $ 1,130 $ 1,070 $ 1,061 $ 1,018 $ 992 $ 885 Notes Payable....................................... $ 1,267 $ 1,312 $ 1,301 $ 1,344 $ 1,384 $ 1,420 $ 1,454 General Partners' Capital/(Deficit)................. $ (21) $ (24) $ (25) $ (28) $ (31) $ (36) $ (42) Limited Partners' Capital/(Deficit)................. $ (154) $ (203) $ (231) $ (279) $ (353) $ (453) $ (546) Partners' Deficit................................... $ (175) $ (227) $ (255) $ (307) $ (384) $ (489) $ (589) Total Distributions................................. $ -- $ -- $ 3,857 $ 4,153 $29,862 $ -- $ -- Book value per limited partnership unit............. $ 16.24 $ 21.38 $(24.27) $(29.32) $(37.15) $(47.59) $(57.47) Net increase (decrease) in cash and cash equivalents....................................... $ 160 $ 44 $ (74) $ 57 $ (15) $ 65 $ (60) Net cash provided by operating activities........... $ 239 $ 147 $ 137 $ 152 $ 146 $ 180 $ 122 Ratio of earnings to fixed charges.................. 1.94/1 1.89/1 1.48/1 1.71/1 2.14/1 1.81/1 1.62/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
SALEM ARMS AIMCO OF AUGUSTA OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $8.13 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $9.50 $ 0
S-21 3795 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-22 3796 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $2,568,000, less approximately $298,378 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-23 3797 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-24 3798 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2014 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-25 3799 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-26 3800 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-27 3801 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 3.00% interest, consisting of a 0% limited partnership interest and a 3.00% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-28 3802 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-29 3803 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $79,000 for the nine months ended September 30, 1997, to $81,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in July 2012. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize S-30 3804 taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $9.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 3805 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $8.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-32 3806 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 8.50% per annum, which resulted in an increase from the initial capitalization rate of 0.50%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.00%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Gross Property Value $ 282,459 11.00% $ 2,567,800 -----------
S-33 3807 - --------------- (1) The total net operating income is equal to total revenues of $767,178, less total expenses of $443,919 and recurring replacement costs of $40,800. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,167,753. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 95% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 282,000 Capitalization rate......................................... 11.00% ----------- Gross valuation of partnership property..................... 2,568,000 Plus: Cash and cash equivalents............................. 169,663 Plus: Other partnership assets, net of security deposits.... 115,865 Less: Mortgage debt, including accrued interest............. (1,301,124) Less: Accounts payable and accrued expenses................. (8,584) Less: Other liabilities..................................... (13,489) ----------- Partnership valuation before taxes and certain costs........ 1,530,331 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (298,378) Less: Closing costs......................................... (64,200) ----------- Estimated net valuation of your partnership................. 1,167,753 Percentage of estimated net valuation allocated to holders of units.................................................. 95.00% ----------- Estimated net valuation of LP ownership..................... 1,109,365 Total LP Percentage............................... 9,500.0 ----------- Estimated valuation per unit................................ 117 =========== Cash consideration per unit................................. 117 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $117 by the $25 liquidation preference of each Preferred OP Unit to get 4.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $117 by a price of $38.69 to get 3.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183 of which, $1,167,753 or 0.21% is the net valuation of your partnership. S-34 3808 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $79,000 for the nine months ended September 30, 1997 to $81,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 3809 11. The estimated unit value of $117, based on a total estimated value of your partnership's property of $2,568,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's indebtedness. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $9.50 per year on the number of Preferred OP Units, or distributions of $8.13 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 3810 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 3811 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2014, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 117 Partnership preferred units................................. 117(1) Partnership common units.................................... 117(1) Alternatives: Not Prices on secondary market................................ Available Estimated liquidation proceeds............................ $ 117 Estimated going concern value............................. $ 113 Net book (deficit)........................................ $(26.94)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Appraisals Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $2,500 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is S-38 3812 our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 18%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 3% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $113 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. S-39 3813 Net Book Value Net book deficit per unit is $26.94 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. STANGER'S ESTIMATE OF NET ASSET VALUE, GOING CONCERN VALUE AND LIQUIDATION VALUE In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $121 per unit, going concern value of $115 per unit and liquidation value of $115 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Prices" An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $4.00, $2.00 and $2.00. In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 95% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its S-40 3814 entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. S-41 3815 A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SALEM ARMS ---------- Total Revenues.............................................. $ 808,056 Operating Expenses.......................................... (445,699) Replacement Reserves -- Net................................. (62,606) Debt Service................................................ (168,115) Capital Expenditures........................................ (1,800) --------- Net Cash Flow..................................... $ 129,936 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred S-42 3816 maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $298,378. Stanger observed that your partnership liquidation value of $1,167,753 was allocated 95% to the limited partner and divided by 9,500 to achieve the liquidation value per unit of $113. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $282,459 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $10,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.5%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 18%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.5%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 9,500 to achieve management's estimate of going concern value of $113 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $117 per unit is equal to management's estimate of liquidation value, S-43 3817 and reflects a 3.5% premium to management's estimate of going concern value. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing with the third year from the closing of this transaction, preferred stock of AIMCO with a dividend equal to the dividend on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive 0.6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 18% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 18% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, 12.89% as described above), plus 500 basis points reflecting the additional risk associated with mortgage debt equal to approximately 50% of property value. The result was rounded. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $121, $115 and $115 representing premiums (discounts) to the offer price of 3.4%, (1.7)% and (1.7)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating S-44 3818 Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. S-45 3819 In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Salem Arms of Augusta Limited Partnership, is a South Carolina limited partnership which completed a private offering in 1974. Insignia acquired the general partner of your partnership in December 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 15 limited partners of your partnership and a total of 9,500 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 10, 1974 for the purpose of owning an apartment property located in Augusta, Georgia, known as "Salem Arms of Augusta." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1971 and consists of 136 apartment units. There are 36 two-bedroom apartments and 100 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 90.52% in 1998, 91.18% in 1997 and 91.18% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that your partnership's property needs deferred maintenance of $298,378 primarily for roofing, gutters and down specks, and landscape and irrigation. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may S-46 3820 be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Budgeted renovations or improvements for 1999 total $298,378 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $458 $427 $455 $450 $432
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $36,420 of $1,284,640 of assessed valuation with a current yearly tax rate of $2.84%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 2.89% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2014 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership in a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve S-47 3821 over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 91% and $428, respectively, at December 31, 1998, compared to 91% and $458, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy and at the property rental rates to improve in the near future because of expected improvements and local market economic strength. In addition, the general partner noted that it expects to spend approximately $298,378 for capital improvements at the property in 1999 to repair and improve the property as described in Attached Report from Adjuster's International. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospectus. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $1,244,408, payable to Reilly Mortgage, which bears interest at the rate of 8.50%. The mortgage debt is due in August 2012. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner owed no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. S-48 3822 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2014, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable, responsible or accountable in damages or otherwise to any of the partners for any acts performed by it in good faith within the scope of the authority conferred on it by your partnership's agreement of limited partnership. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 0 0 0 1994................................... 0 0 0 0 1995................................... 3.14 1,457 0 7,101.25 1996................................... .44 163 0 997.50 1997................................... .41 152 0 926.25 1998................................... 0 0 0 0 ----- ----- -- -------- Total........................ $3.99 1,772 0 9,025.00
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that S-49 3823 there have been no units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 3% interest in your partnership, including the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $5,712 1995........................................................ 5,712 1996........................................................ 5,712 1997........................................................ 8,650 1998........................................................ 7,325
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $52,269 1996........................................................ 47,992 1997........................................................ 50,739 1998........................................................ 50,711
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 3824 SELECTED FINANCIAL INFORMATION OF SALEM ARMS OF AUGUSTA Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Salem Arms of Augusta taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents........................ $ 249 $ 206 $ 88 $ 162 $ 105 $ 120 $ 55 Land & Building.................................. 2,831 2,781 2,793 2,693 2,634 2,569 2,465 Accumulated Depreciation......................... (2,080) (1,998) (2,018) (1,936) (1,862) (1,797) (1,732) Other Assets..................................... 145 141 207 142 141 100 97 ------- ------- ------- ------- ------- ------- ------- Total Assets............................. $ 1,145 $ 1,130 $ 1,070 $ 1,061 $ 1,018 $ 992 $ 885 ======= ======= ======= ======= ======= ======= ======= Notes Payable.................................... $ 1,267 $ 1,312 $ 1,301 $ 1,344 $ 1,384 $ 1,420 $ 1,454 Other Liabilities................................ 53 45 24 24 18 61 20 ------- ------- ------- ------- ------- ------- ------- Total Liabilities........................ $ 1,320 $ 1,357 $ 1,325 $ 1,368 $ 1,402 $ 1,481 $ 1,474 ------- ------- ------- ------- ------- ------- ------- Partners Deficit......................... $ (175) $ (227) $ (255) $ (307) $ (384) $ (489) $ (589) ======= ======= ======= ======= ======= ======= =======
SALEM ARMS ------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue................................... $ 535 $ 539 $ 748 $ 697 $ 744 $ 735 $ 705 Other Income..................................... 32 29 38 32 29 31 16 ------- ------- ------- ------- ------- ------- ------- Total Revenue............................ $ 567 $ 568 $ 786 $ 729 $ 773 $ 766 $ 721 ------- ------- ------- ------- ------- ------- ------- Operating Expenses............................... $ 188 $ 192 $ 300 $ 248 $ 258 $ 277 $ 264 General & Administrative......................... 122 120 201 178 164 175 174 Depreciation..................................... 62 62 83 73 66 66 54 Interest Expense................................. 86 89 112 115 118 121 124 Property Taxes................................... 28 26 36 33 33 29 28 ------- ------- ------- ------- ------- ------- ------- Total Expenses........................... $ 486 $ 489 $ 732 $ 647 $ 639 $ 668 $ 644 ------- ------- ------- ------- ------- ------- ------- Net Income before extraordinary items............ $ 81 $ 79 $ 54 $ 82 $ 134 $ 98 $ 77 Extraordinary Items.............................. -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Net Income....................................... $ 81 $ 79 $ 54 $ 82 $ 134 $ 98 $ 77 ======= ======= ======= ======= ======= ======= ======= Net Income per limited partnership unit.......... $ 8.05 $ 7.80 $ 5.44 $ 8.22 $ 13.44 $ 9.88 $ 7.72 ======= ======= ======= ======= ======= ======= ======= Distributions per limited partnership unit....... $ -- $ -- $ 0.39 $ 0.42 $ 2.99 $ -- $ -- ======= ======= ======= ======= ======= ======= =======
S-51 3825 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $81,000 for the nine months ended September 30, 1998, compared to $79,000 for the nine months ended September 30, 1997. The increase in net income of $2,000 was primarily the result of an increase in other income and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $567,000 for the nine months ended September 30, 1998, compared to $568,000 for the nine months ended September 30, 1997, a decrease of $1,000, or 0.01%. A slight decrease in rental revenues was offset by an increase in other income, primarily higher application fees and other miscellaneous income. Overall, there were no large fluctuations from the prior period. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $188,000 for the nine months ended September 30, 1998, compared to $192,000 for the nine months ended September 30, 1997, a decrease of $4,000, or 2.10%. The decrease is due to lower advertising and general maintenance costs. The decrease in advertising is due to steady occupancy. The property experienced decreases in ground maintenance and is no longer undergoing the remodeling which it incurred in 1997. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $2,000 to $122,000 for the nine months ended September 30, 1998, compared to $120,000 the corresponding period for 1997. This increase is due primarily to higher professional fees and computer maintenance. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $86,000 for the nine months ended September 30, 1998, compared to $89,000 for the nine months ended September 30, 1997, a decrease of $3,000, or 3.37%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $54,000 for the year ended December 31, 1997, compared to a net income of $82,000 for the year ended December 31, 1996. The decrease in net income of $28,000 was S-52 3826 primarily the result of an increase in operating and general and administrative expenses, partially offset by an increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $786,000 for the year ended December 31, 1997, compared to $729,000 for the year ended December 31, 1996, an increase of $57,000, or 7.25%. This increase is due primarily to a 7.26% increase in rental rates. Other Income increased $6,000, or 18.75% from 1996. This increase is largely due to higher late fees collected. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $300,000 for the year ended December 31, 1997, compared to $248,000 for the year ended December 31, 1996, an increase of $52,000 or 20.9%. The increase is primarily due to an 18.7% increase in grounds maintenance and general repair of the exterior and interior of the apartment complex. Management expenses of $51,000 for 1997 increased approximately 5.66% from prior year due to the increase in rental revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $201,000, for the year ended December 31, 1997, an increase of $23,000 compared to the prior year. This increase is due primarily to general increases in partnership administrative and asset management costs. Bookkeeping fees increased $3,000 from prior year. DEPRECIATION EXPENSE Depreciation expense increased $10,000 (13.7%) to $83,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $112,000 for the year ended December 31, 1997, compared to $115,000 for the year ended December 31, 1996, a decrease of $3,000, or 2.6%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership had net income of $82,000 for the year ended December 31, 1996, compared to net income of $134,000 for the year ended December 31, 1995. The decrease in net income of $52,000 was primarily the result of a decrease in rental revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $729,000 for the year ended December 31, 1996, compared to $773,000 for the year ended December 31, 1995, a decrease of $44,000, or 6.03%. This decrease is primarily due to a 7% decrease in average rental rates. This decrease is offset by a $3,000 increase in other income, due primarily to higher deposit forfeitures and lease cancellation fees. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $248,000 for the year ended December 31, 1996, compared to $258,000 for the year ended December 31, 1995, a S-53 3827 decrease of $10,000 or 3.88%. This decrease is due to a general decrease in repair and maintenance costs. Management expenses of $48,000 decreased approximately 8.18% from the prior year. This decrease corresponds to the decrease in rental revenue during the current year. DEPRECIATION EXPENSE Depreciation expense increased $7,000, or 10.6% due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $115,000 for the year ended December 31, 1996, compared to $118,000 for the year ended December 31, 1995, a decrease of $3,000, or 2.5%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $249,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $1,267,000. The mortgage requires monthly payments of approximately $12,897 until July, 2012, including interest at 8.5%. The note is collateralized by pledge of land and buildings and is insured by HUD. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 3828 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 9,500 units of your partnership (up to 2,375 units) for consideration per unit of (i) 4.75 Preferred OP Units, (ii) 3.25 Common OP Units, or (iii) $117 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-55 3829 , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 3830 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 3831 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 3832 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 3833 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 3834 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 3835 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 3836 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 3837 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 3838 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 3839 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 3840 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 3841 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 3842 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 3843 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 3844 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 3845 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is Partnership Agreement") or as provided by December 31, 2014. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating own, develop, operate and manage your Partnership is to conduct any business that partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your partnership's partnership organized pursuant to the agreement of limited partnership, your Delaware Revised Uniform Limited Part- partnership may do all things necessary for nership Act (as amended from time to time, or incidental to the protection and benefit or any successor to such statute) (the of your partnership, including borrowing "Delaware Limited Partnership Act"), funds and creating liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 3846 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity Your partnership's agreement of limited The general partner is authorized to issue partnership does not provide for the additional partnership interests in the issuance additional limited partnership AIMCO Operating Partnership for any interests in your partnership other than partnership purpose from time to time to the those that have already been purchased at limited partners and to other persons, and the time of the execution of your to admit such other persons as additional partnership's agreement of limited limited partners, on terms and conditions partnership. The capital contributions of and for such capital contributions as may be the limited partners need not be equal. established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership is silent as to any restrictions contribute funds or other assets to its on contracting with the general partner or subsidiaries or other persons in which it its affiliates. has an equity investment,
S-73 3847 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP and such persons may borrow funds from the AIMCO Operating Partnership, on terms and conditions established in the sole and absolute discretion of the general partner. To the extent consistent with the business purpose of the AIMCO Operating Partnership and the permitted activities of the general partner, the AIMCO Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money or issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and any or all of the objects of your authority to borrow money on behalf of the partnership's business and to secure the AIMCO Operating Partnership. The AIMCO same by mortgage, pledge or other lien. Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP inspect and examine the books of your Unitholder's own expense, to obtain a partnership at all times at the principal current list of the name and last known office of your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership All management powers over the business and authorized to do any and all things affairs of the AIMCO Operating Partnership necessary and proper of the accomplishment are vested in AIMCO-GP, Inc., which is the of the objection enumerated in your general partner. No OP Unitholder has any partnership's agreement of limited right to participate in or exercise control partnership or necessary or incident to the or management power over the business and protection and benefit of your partnership. affairs of the AIMCO Operating Partner- No limited partner may take part in the ship. The OP Unitholders have the right to conduct or control of the business of your vote on certain matters described under partnership and no limited partners have the "Comparison of Your Units and AIMCO OP right or authority to act for or bind your Units -- Voting partnership.
S-74 3848 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable, responsible Agreement, the general partner is not liable or accountable in damages or otherwise to to the AIMCO Operating Partnership for any of the partners for any acts performed losses sustained, liabilities incurred or by it in good faith within the scope of the benefits not derived as a result of errors authority conferred on it by your in judgment or mistakes of fact or law of partnership's agreement of limited any act or omission if the general partner partnership. Your partnership's agreement of acted in good faith. The AIMCO Operating limited partnership does not provide for the Partnership Agreement provides for indemnification of the general partner or indemnification of AIMCO, or any director or its affiliates. officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating
S-75 3849 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Your partnership's agreement of limited Except in limited circumstances, the general partnership does not provide for the removal partner has exclusive management power over of the general partner. The general partner the business and affairs of the AIMCO may resign and a substitute general partner Operating Partnership. The general partner may be elected with the consent of the may not be removed as general partner of the limited partners holding 51% of the AIMCO Operating Partnership by the OP outstanding units. A limited partner may not Unitholders with or without cause. Under the transfer its units without the consent of AIMCO Operating Partnership Agreement, the the general partner. general partner may, in its sole discretion, prevent a transferee of an OP Unit from becoming a substituted limited partner pursuant to the AIMCO Operating Partnership Agreement. The general partner may exercise this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement With the exception of certain circumstances of limited partnership must be approved by set forth in the AIMCO Operating Partnership the general partner and the limited partners Agreement, whereby the general partner may, owning at least 51% of the units. without the consent of the OP Unitholders, amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Inter-
S-76 3850 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP est. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under South Carolina law, the limited Except for fraud, willful misconduct or partners are not liable directly or gross negligence, no OP Unitholder has indirectly for debts, obligations and personal liability for the AIMCO Operating liabilities of your partnership. However, if Partnership's debts and obligations, and a limited partner takes actions on behalf of liability of the OP Unitholders for the your partnership, such limited partner will AIMCO Operating Partnership's debts and be responsible for any liability which may obligations is generally limited to the result from such actions. amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-77 3851 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties The general partner of your partnership must Unless otherwise provided for in the use its best efforts to further the relevant partnership agreement, Delaware law interests of your partnership, but it is not generally requires a general partner of a prevented from engaging in other businesses. Delaware limited partnership to adhere to fiduciary duty standards under which it owes In general, your partnership's agreement of its limited partners the highest duties of limited partnership and the AIMCO Operating good faith, fairness and loyalty and which Partnership Agreement have limitations on generally prohibit such general partner from the liability of the general partner but taking any action or engaging in any such limitations differ in terms and provide transaction as to which it has a conflict of more protection for the general partner of interest. The AIMCO Operating Partnership the AIMCO Operating Partnership. Agreement expressly authorizes the general partner to enter into, on behalf of the AIMCO Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the AIMCO Operating Partnership and the general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to
S-78 3852 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-79 3853 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting holders of a 66% of the Agreement, the holders of rights only with respect to outstanding units is the Preferred OP Units will certain limited matters such required to terminate your have the same voting rights as certain amendments and partnership. However, if as holders of the Common OP termination of the AIMCO your partnership is Units. See "Description of Operating Partnership dissolved, any group of OP Units" in the accompany- Agreement and certain partner owning at least 60% ing Prospectus. So long as transactions such as the of the total partnership any Preferred OP Units are institution of bankruptcy interests may reform your outstanding, in addition to proceedings, an assignment partnership and continue in any other vote or consent of for the benefit of creditors business under arrangements partners required by law or and certain transfers by the which make proper provisions by the AIMCO Operating general partner of its for its liabilities. The Partnership Agreement, the interest in the AIMCO consent of the limited affirmative vote or consent Operating Partnership or the partners owning 51% of the of holders of at least 50% admission of a successor outstanding units is of the outstanding Preferred general partner. necessary to approve the OP Units will be necessary withdrawal of the general for effecting any amendment Under the AIMCO Operating partner and the election of of any of the provisions of Partnership Agreement, the a substitute general the Partnership Unit general partner has the partner. Amendments to your Designation of the Preferred power to effect the partnership's agreement of OP Units that materially and acquisition, sale, transfer, limited partnership require adversely affects the rights exchange or other both the consent of the or preferences of the disposition of any assets of general partner and the holders of the Preferred OP the AIMCO Operating limited partners owing 51% Units. The creation or Partnership (including, but of the units. issuance of any class or not limited to, the exercise series of partnership units, or grant of any conversion, The general partner may including, without option, privilege or cause the dissolution of limitation, any partner- subscription right or any your partnership by ship units that may have other right available in retiring. If another gen- rights senior or superior to connection with any assets eral partner remains, it may the Preferred OP Units, at any time held by the elect to continue your shall not be deemed to AIMCO Operating Partnership) partnership. If there is no materially adversely affect or the merger, general partner remaining, the rights or preferences of consolidation, the holders of a majority of the holders of Preferred OP reorganization or other the units may vote to reform Units. With respect to the combination of the AIMCO your partnership and elect a exercise of the above Operating Partnership with new general partner to described voting rights, or into another entity, all continue the business of each Preferred OP Units without the consent of the your partnership. Upon such shall have one (1) vote per OP Unitholders. occurrence, your part- Preferred OP Unit. nership will dissolve and The general partner may all of the assets and cause the dissolution of the liabilities of your part- AIMCO Operating Partnership nership will be contributed by an "event of withdrawal," to a new partner which will as defined in the Delaware be formed and all parties to Limited Partnership Act your partnership's agreement (including, without limi- of limited partnership will tation, bankruptcy), unless, become parties to such new within 90 days after the partners, and unless withdrawal, holders of a otherwise agreed to by the "majority in holder of a majority of the units out-
S-80 3854 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS standing, your partnership's interest," as defined in the agreement of limited Delaware Limited Partnership partnership will constitute Act, agree in writing, in the limited partnership their sole and absolute agreement of such new discretion, to continue the partnership. business of the AIMCO Operating Partnership and to In general, you have greater the appointment of a voting rights in your successor general partner. partnership than you will The general partner may have as an OP Unitholder. OP elect to dissolve the AIMCO Unitholders cannot remove Operating Partnership in its the general partner of the sole and absolute AIMCO Operating Partnership. discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. quarterly cash distributions to distribute quarterly all, at the rate of $0.50 per or such portion as the Preferred OP Unit; provided, general partner may in its however, that at any time sole and absolute discretion and from time to time on or determine, of Available Cash after the fifth anniversary (as defined in the AIMCO of the issue date of the Operating Partnership Preferred OP Units, the Agreement) generated by the AIMCO Operating Partnership AIMCO Operating Partnership may adjust the annual during such quarter to the distribution rate on the general partner, the special Preferred OP Units to the limited partner and the lower of (i) 2.00% plus the holders of Common OP Units annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special lim- original issue. Holders of Preferred
S-81 3855 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units will not be ited partner and holders of entitled to receive any Common OP Units with respect distributions in excess of to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
Upon receiving an offer to There is no public market There is no public market purchase units held by a for the Preferred OP Units for the OP Units. The AIMCO limited partner, such and the Preferred OP Units Operating Partnership limited partner must first are not listed on any Agreement restricts the offer to sell such units to securities exchange. The transferability of the OP the corporate general Preferred OP Units are Units. Until the expiration partner subject of
S-82 3856
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for a period of twenty days to restrictions on transfer one year from the date on on the same terms as the as set forth in the AIMCO which an OP Unitholder offer received. If the Operating Partnership acquired OP Units, subject corporate general partner Agreement. to certain exceptions, such does not exercise the right OP Unitholder may not to purchase such units, the Pursuant to the AIMCO transfer all or any por- limited partner may accept Operating Partnership tion of its OP Units to any the offer and transfer such Agreement, until the transferee without the units to a transferee if: expiration of one year from consent of the general (1) such transferee is not a the date on which a holder partner, which consent may minor, insane or of Preferred OP Units be withheld in its sole and incompetent, (2) the general acquired Preferred OP Units, absolute discretion. After partner consents, which subject to certain the expiration of one year, consent may not be unrea- exceptions, such holder of such OP Unitholder has the sonably withheld, (3) the Preferred OP Units may not right to transfer all or any transferor secures for the transfer all or any portion portion of its OP Units to corporate general partner an of its Preferred OP Units to any person, subject to the opinion of counsel any transferee without the satisfaction of certain con- satisfactory to such gen- consent of the general ditions specified in the eral partner that such partner, which consent may AIMCO Operating Partnership transfer is exempt from or be withheld in its sole and Agreement, including the otherwise in compliance with absolute discretion. After general partner's right of applicable securities laws, the expiration of one year, first refusal. See (4) an appropriate in- such holders of Preferred OP "Description of OP Units -- strument of conveyance is Units has the right to Transfers and Withdrawals" executed, (5) the transferee transfer all or any portion in the accompanying has executed your of its Preferred OP Units to Prospectus. partnership's agreement of any person, subject to the limited partnership satisfaction of certain After the first anniversary evidencing its acceptance conditions specified in the of becoming a holder of and agreement of its terms AIMCO Operating Partner- Common OP Units, an OP and (6) the corporate ship Agreement, including Unitholder has the right, general partner has made the general partner's right subject to the terms and appropriate changes to your of first refusal. conditions of the AIMCO partnership's agreement of Operating Partnership limited partnership. After a one-year holding Agreement, to require the Notwithstanding the period, a holder may redeem AIMCO Operating Partnership foregoing, a limited partner Preferred OP Units and to redeem all or a portion may transfer by gift or receive in exchange of the Common OP Units held inter vivos trust to or for therefor, at the AIMCO Oper- by such party in exchange the benefit of his immediate ating Partnership's option, for a cash amount based on family. (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See There are no redemption below), cash in an amount "Description of OP rights associated with your equal to the Liquidation Units -- Redemption Rights" units. Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on
S-83 3857 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the Preferred OP Units Stock, based on an exchange tendered for redemption; ratio of one share of Class provided that such shares A Common Stock for each Com- are part of a class or mon OP Unit, subject to series of preferred stock adjustment as provided in that is then listed on the the AIMCO Operating NYSE or another national Partnership Agreement. securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 3858 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 3859 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 3860 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 3861 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 3862 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 3863 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 3864 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 3865 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-92 3866 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 3867 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $5,712 in 1996, $8,650 in 1997 and $7,325 in 1998. The property manager received management fees of $47,992 in 1996, $50,739 in 1997 and $50,711 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 3868 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $277,875 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 3869 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Salem Arms of Augusta Limited Partnership at December 31, 1997 and 1996, and for the years then ended, as set forth in their report. We've included the financial statements of Salem Arms of Augusta Limited Partnership in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-96 3870 INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF SALEM ARMS OF AUGUSTA, L.P.
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note to Condensed Financial Statements (unaudited).......... F-5 Report of Independent Auditors.............................. F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Profit and Loss for the year ended December 31, 1997...................................................... F-8 Statement of Changes in Deficit for the year ended December 31, 1997.................................................. F-11 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-12 Notes to Financial Statements............................... F-14 Report of Independent Auditors.............................. F-16 Balance Sheet as of December 31, 1996....................... F-17 Statement of Profit and Loss for the year ended December 31, 1996...................................................... F-18 Statement of Changes in Deficit for the year ended December 31, 1996.................................................. F-22 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-23 Notes to Financial Statements............................... F-25
F-1 3871 SALEM ARMS CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 248,533 Receivables and Deposits.................................... 7,381 Restricted Escrows.......................................... 69,089 Other Assets................................................ 68,137 Investment property: Land...................................................... $ 110,968 Building and related personal property.................... 2,720,370 ----------- 2,831,338 ----------- Less: Accumulated depreciation............................ (2,080,321) 751,017 ----------- ---------- Total Assets...................................... $1,144,157 ========== LIABILITIES AND PARTNERS' DEFICIT Accrued Liabilities......................................... $ 53,305 Notes Payable............................................... 1,266,397 Partners' Deficit................................. (175,545) ---------- Total Liabilities and Partners' Deficit........... $1,144,157 ---------- ----------
See accompanying note. F-2 3872 SALEM ARMS CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $535,208 $538,671 Other income.............................................. 31,797 28,683 -------- -------- Total revenues.................................... 567,005 567,354 Expenses: Operating expenses........................................ 187,718 192,243 General and administrative expenses....................... 122,180 120,399 Depreciation expense...................................... 62,078 62,078 Interest expense.......................................... 86,098 88,927 Property tax expense...................................... 28,432 25,750 -------- -------- Total expenses.................................... 486,506 489,397 Net income (loss)................................. $ 80,499 $ 77,957 ======== ========
See accompanying note. F-3 3873 SALEM ARMS CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Operating activities: Net income (loss)......................................... $ 80,499 $ 77,957 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 62,078 62,078 Changes in accounts: Receivables and deposits and other assets.............. 67,186 (13,754) Accounts payable and accrued expenses.................. 29,064 20,927 -------- -------- Net cash provided by (used in) operating activities...................................... 238,827 147,208 Investing activities: Property improvements and replacements.................... (38,642) (87,781) Net (increase)/decrease in restricted escrows............. (5,242) 16,579 -------- -------- Net cash provided by (used in) investing activities....... (43,884) (71,202) Financing activities: Payments on mortgage...................................... (34,727) (31,906) -------- -------- Net cash provided by (used in) financing activities....... (34,727) (31,906) -------- -------- Net increase (decrease) in cash and cash equivalents...... 160,216 44,100 Cash and cash equivalents at beginning of year............ 88,317 162,290 -------- -------- Cash and cash equivalents at end of period................ $248,533 $206,390 ======== ========
See accompanying note F-4 3874 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP NOTE TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Salem Arms as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3875 REPORT OF INDEPENDENT AUDITORS The General Partners Salem Arms of Augusta Limited Partnership We have audited the accompanying balance sheet of Salem Arms of Augusta Limited Partnership (FHA Project No. 061-35036-PM) as of December 31, 1997 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salem Arms of Augusta Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1998 Greenville, South Carolina F-6 3876 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM BALANCE SHEET DECEMBER 31, 1997 ASSETS Current assets 1110 Petty cash.............................. $ 747 1120 Unrestricted cash.................................... 74,440 1130 Tenant accounts receivable, less allowance for doubtful accounts of $8,681............................ 9,551 ---------- Total current assets.............................. 84,738 Deposits held in trust-funded 1191 Tenant security deposits............................. 13,130 Prepaid expenses 1240 Property insurance.................... 6,091 1250 Mortgage insurance................................... 3,392 ---------- Total prepaid expenses............................ 9,483 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 29,337 1320 Reserve for replacements............................. 63,847 ---------- Total deposits.................................... 93,184 Fixed assets, at cost (Notes 1 and 2) 1410 Land............. $ 110,968 1420 Building............................................. 2,681,728 ---------- 2,792,696 Less accumulated depreciation..................... (2,018,243) 774,453 ---------- Other assets 1910 Partnership cash..................................... 94,484 ---------- $1,069,472 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 10,853 2130 Accrued interest -- mortgage......................... 9,915 2320 Mortgage payable, current portion (Note 2)........... 46,795 ---------- Total current liabilities......................... 67,563 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 13,130 2210 Rent received in advance............................. 258 ---------- Total deposit and prepayment liabilities.......... 13,388 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 1,291,209 Less current portion...................................... (46,795) ---------- Total long-term liabilities....................... 1,244,414 ---------- Total liabilities................................. 1,325,365 3130 Partners' (deficit).................................. (255,893) ---------- $1,069,472 ==========
See accompanying notes. F-7 3877 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1997 PART I
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- -------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. $815,792 Tenant Assistance Payments................................ Furniture and Equipment................................... Stores and Commercial..................................... Garage and Parking Spaces................................. Flexible Subsidy Income................................... Miscellaneous (specify)................................... Total Rent Revenue Potential at 100% Occupancy.... 815,792 Vacancies 5200 Apartments................................................ (67,682) Furniture and Equipment................................... Stores and Commercial..................................... Garage and Parking Spaces................................. Miscellaneous (specify)................................... Total Vacancies................................... (67,682) Net Rental Revenue Rent Revenue Less Vacancies.... 748,110 Elderly and Congregate Services Income 5300 Total Service Income.............................. -- Financial Revenue 5400 Interest Income -- Project Operations..................... 670 Income from Investments -- Residual Receipts.............. Income from Investments -- Reserve for Replacement........ Income from Investments -- Miscellaneous*................. 3,664 Total Financial Revenue........................... 4,334 Other Revenue 5900 Laundry and Vending....................................... NSF and Late Charges...................................... 16,088 Damages and Cleaning Fees................................. 6,567 Forfeited Tenant Security Deposits........................ 5,421 Other Revenue (specify)**................................. 5,389 Total Other Revenue............................... 33,465 Total Revenue..................................... $785,909
F-8 3878 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- -------- Advertising Expenses 6200/6300 Advertising............................................... $ 20,712 Other Administrative Expense.............................. 13,994 Office Salaries........................................... 15,056 Office Supplies........................................... 9,632 Office or Model Apartment Rent............................ Management Fee............................................ 50,739 Manager or Superintendent Salaries........................ 22,998 Manager or Superintendent Rent Free Unit.................. 13,983 Legal Expenses (Project).................................. 201 Auditing Expenses (Project)............................... 6,641 Bookkeeping Fees/Accounting Services...................... 8,650 Telephone and Answering Service........................... 6,091 Bad Debts................................................. 25,171 Miscellaneous Administrative Expenses (specify)***........ 7,153 -------- Total Administrative Expenses..................... 201,021 Utilities Expense 6400 Fuel Oil/Coal............................................. Electricity (Light and Misc. Power)....................... 15,321 Water..................................................... 9,392 Gas....................................................... Sewer..................................................... 11,724 -------- Total Utilities Expense........................... 36,437 Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. Janitor and Cleaning Supplies............................. $ 1,290 Janitor and Cleaning Contract............................. 1,115 Exterminating Payroll/Contract............................ 2,427 Exterminating Supplies.................................... Garbage and Trash Removal................................. 10,090 Security Payroll/Contract................................. 6,265 Grounds Payroll........................................... 2,190 Grounds Supplies.......................................... 1,195 Grounds Contract.......................................... 19,238 Repairs Payroll........................................... 42,406 Repairs Material.......................................... 15,526 Repairs Contract.......................................... 9,271 Elevator Maintenance/Contract............................. Heating/Cooling Repairs and Maintenance................... 3,049 Swimming Pool Maintenance/Contract........................ 2,810 Snow Removal.............................................. Decorating Payroll/Contract............................... 86,805 Decorating Supplies....................................... 11,650 Other..................................................... Miscellaneous Operating & Maintenance Exp.*............... 1,162 -------- Total Operating & Maintenance Expenses............ 216,489 --------
F-9 3879 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- -------- Taxes and Insurance 6700 Real Estate Taxes......................................... 36,134 Payroll Taxes (FICA)...................................... 8,419 Miscellaneous Taxes, Licenses and Permits................. 109 Property and Liability Insurance (Hazard)................. 18,807 Fidelity Bond Insurance................................... Workmen's Compensation.................................... 6,176 Health Insurance & Other Employee Benefits................ 7,088 Other Insurance (specify)................................. -------- Total Taxes and Insurance......................... 76,733 Financial Expenses 6800 Interest on Bonds Payable................................. Interest on Mortgage Payable.............................. 111,758 Interest on Notes Payable (Long-Term)..................... Interest on Notes Payable (Short-Term).................... Mortgage Insurance Premium/Service Charge................. Miscellaneous Financial Expenses.......................... -------- Total Financial Expenses.......................... 118,096 Elderly & Congregate Service Expenses 6900 Total Service Expenses -- Schedule Attached....... Total Cost of Operations before Depreciation...... 648,776 Profit (Loss) before Depreciation................. 137,133 Depreciation (Total) -- 6600 (specify).................... (82,771) Operating Profit or (Loss)................................ 54,362 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... Legal Expenses (Entity)................................... Taxes (Federal -- State -- Entity)........................ Other Expenses (Entity)................................... -------- Total Corporate Expenses.......................... -------- Net Profit or (Loss).............................. $ 54,362 ========
F-10 3880 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1997 (Deficit) at December 31, 1996.............................. $(306,398) Net income.................................................. 54,362 Distributions............................................... (3,857) --------- (Deficit) at December 31, 1997.............................. $(255,893) =========
See accompanying notes. F-11 3881 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Source of funds Operations: Revenue: Rental income.......................................... $ 705,457 Other: Legal and late fees.................................. $ 16,088 Cleaning and damage.................................. 6,567 Deposits forfeited................................... 10,810 Interest income...................................... 4,334 37,799 -------- --------- 743,256 Expenses: Administrative....................................... 64,424 Management fee....................................... 50,739 Bookkeeper fee....................................... 8,650 Operating expenses................................... 32,837 Payrolls............................................. 80,460 Maintenance fees..................................... 174,083 Taxes -- payroll..................................... 8,417 Taxes -- real estate................................. 36,459 Property insurance................................... 18,270 Workmen's compensation............................... 6,176 Health insurance..................................... 7,088 Interest on mortgage note............................ 111,758 Mortgage insurance premium........................... 6,428 Miscellaneous taxes and license...................... 111 605,900 -------- --------- Net cash provided by operating activities................... 137,356 Investing activities Change in partnership cash.................................. (48,367) Change in restricted deposits and funded reserves........... (13,696) Purchase of fixed assets.................................... (99,608) Change in petty cash........................................ (147) --------- Net cash (used) for investing activities.................... (161,818) Financing activities Reduction of long-term debt................................. (43,001) Distributions............................................... (3,857) --------- Net cash (used) for financing activities.................... (46,858) --------- (Decrease) in unrestricted cash............................. (71,320) Unrestricted cash at December 31, 1996...................... 145,760 --------- Unrestricted cash at December 31, 1997...................... $ 74,440 =========
F-12 3882 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS -- (CONTINUED) Operating activities Net income.................................................. $ 54,362 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 82,771 Changes in operating assets and liabilities: Prepaid expenses....................................... 447 Deposits held in trust................................. 2,800 Tenant accounts receivable............................. (3,169) Accounts payable....................................... 3,600 Rent received in advance............................... (330) Accrued property taxes................................. (325) Tenant security deposits............................... (2,800) --------- Net cash provided by operating activities................... $ 137,356 =========
See accompanying notes. F-13 3883 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Augusta, Georgia and operates thereon an apartment complex of 136 units, under Section 221(d)(4) of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by an accelerated method over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7 percent of gross collections to Insignia Residential Group. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $12,897 until July 2012, including interest at 8.5%, to Reilly Mortgage Group. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1998....................................................... $46,795 1999....................................................... 50,931 2000....................................................... 55,433 2001....................................................... 60,333 2002....................................................... 65,665
During the year, the Partnership incurred interest costs on the mortgage note of $111,758 and paid interest costs of $111,758. F-14 3884 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- ------- Insignia Residential Group....................... Management fee $50,739 Insignia Residential Group....................... Bookkeeper fee 8,650
4. FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ -------- ----------- ------------- Salem Arms of Augusta........ $1,291,209 $110,968 $1,410,873 $1,270,855 ========== ======== ========== ==========
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS - ----------- -------- ----------- ---------- ------------ -------- ----------- Salem Arms........... $110,968 $2,681,728 $2,792,696 $2,018,243 9/74 3-40 ======== ========== ========== ==========
Reconciliation of "Fixed Assets and Accumulated Depreciation": FIXED ASSETS Balance at beginning of year................................ $2,693,088 Property improvements....................................... 99,608 ---------- Balance at end of year...................................... $2,792,696 ========== ACCUMULATED DEPRECIATION Balance at beginning of year................................ $1,935,472 Additions charged to expense................................ 82,771 ---------- Balance at end of year...................................... $2,018,243 ==========
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $2,745,565. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $2,302,182. NOTE 5 EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3885 REPORT OF INDEPENDENT AUDITORS The General Partners Salem Arms of Augusta Limited Partnership We have audited the accompanying balance sheet of Salem Arms of Augusta Limited Partnership (FHA Project No. 061-35036-PM) as of December 31, 1996 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salem Arms of Augusta Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1997 Greenville, South Carolina F-16 3886 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets 1110 Petty cash........................................... $ 600 1120 Unrestricted cash.................................... 145,760 1130 Tenant accounts receivable........................... 6,382 ---------- Total current assets.............................. 152,742 Deposits held in trust -- funded 1191 Tenant security deposits............................. 15,930 Prepaid expenses 1240 Property insurance................................... 6,628 1250 Mortgage insurance................................... 3,302 ---------- Total prepaid expenses............................ 9,930 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 22,631 1320 Reserve for replacements............................. 56,857 ---------- Total deposits.................................... 79,488 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 110,968 1420 Building............................................. 2,582,120 ---------- 2,693,088 Less accumulated depreciation..................... (1,935,472) 757,616 ---------- Other assets 1910 Partnership cash..................................... 46,117 ---------- $1,061,823 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 7,578 2130 Accrued interest -- mortgage......................... 9,915 2320 Mortgage payable, current portion (Note 2)........... 42,994 ---------- Total current liabilities......................... 60,487 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 15,930 2210 Rent received in advance............................. 588 ---------- Total deposit and prepayment liabilities.......... 16,518 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 1,334,210 Less current portion...................................... (42,994) ---------- Total long-term liabilities....................... 1,291,216 ---------- Total liabilities................................. 1,368,221 3130 Partners' (deficit).................................. (306,398) ---------- $1,061,823 ==========
See accompanying notes. F-17 3887 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1996 PART I
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- -------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. $791,835 Tenant Assistance Payments................................ Furniture and Equipment................................... Stores and Commercial..................................... Garage and Parking Spaces................................. Flexible Subsidy Income................................... Miscellaneous (specify)................................... -------- Total Rent Revenue Potential at 100% Occupancy.... 791,835 Vacancies 5200 Apartments................................................ (94,418) Furniture and Equipment................................... Stores and Commercial..................................... Garage and Parking Spaces................................. Miscellaneous (specify)................................... -------- Total Vacancies................................... (94,418) -------- Net Rental Revenue Rent Revenue Less Vacancies.... 697,417 Elderly and Congregate Services Income 5300 -------- Total Service Income (Schedule Attached).......... -- Financial Revenue 5400 Interest Income -- Project Operations..................... 411 Financial Income from Investments -- Residual Receipts.... Income from Investments -- Reserve for Replacement........ Income from Investments -- Miscellaneous*................. 3,344 -------- Total Financial Revenue........................... 3,755 Other Revenue 5900 Laundry and Vending....................................... NSF and Late Charges...................................... 7,813 Damages and Cleaning Fees................................. 4,926 Forfeited Tenant Security Deposits........................ 6,250 Other Revenue (specify)**................................. 8,912 -------- Total Other Revenue............................... 27,901 -------- Total Revenue..................................... $729,073 ========
F-18 3888 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- -------- Administrative Expenses 6200/6300 Advertising............................................... $ 21,739 Other Administrative Expense.............................. 7,699 Office Salaries........................................... 15,254 Office Supplies........................................... 8,685 Office or Model Apartment Rent............................ 6312 Management Fee............................................ 47,992 Manager or Superintendent Salaries........................ 23,985 Manager or Superintendent Rent Free Unit.................. 14,968 Legal Expenses (Project).................................. 1,294 Auditing Expenses (Project)............................... 6,325 Bookkeeping Fees/Accounting Services...................... 5,712 Telephone and Answering Service........................... 4,323 Bad Debts................................................. 13,685 Miscellaneous Administrative Expenses (specify)***........ 5,876 -------- Total Administrative Expenses..................... 177,537 Utilities Expense 6400 Fuel Oil/Coal............................................. Electricity (Light and Misc. Power)....................... 14,856 Water..................................................... 9,256 Gas....................................................... Sewer..................................................... 8,036 -------- Total Utilities Expense........................... 32,148
F-19 3889 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- -------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. Janitor and Cleaning Supplies............................. $ 1,253 Janitor and Cleaning Contract............................. Exterminating Payroll/Contract............................ 2,264 Exterminating Supplies.................................... Garbage and Trash Removal................................. 8,942 Security Payroll/Contract................................. 342 Grounds Payroll........................................... Grounds Supplies.......................................... 1,553 Grounds Contract.......................................... 15,475 Repairs Payroll........................................... 50,782 Repairs Material.......................................... 14,641 Repairs Contract.......................................... 13,795 Elevator Maintenance/Contract............................. Heating/Cooling Repairs and Maintenance................... 3,400 Swimming Pool Maintenance/Contract........................ 5,637 Snow Removal.............................................. Decorating Payroll/Contract............................... 32,318 Decorating Supplies....................................... 13,828 Other..................................................... Miscellaneous Operating & Maintenance Exp.****............ 1,193 -------- Total Operating & Maintenance Expenses............ 165,423 Taxes and Insurance 6700 Real Estate Taxes......................................... 33,017 Payroll Taxes (FICA)...................................... 7,909 Miscellaneous Taxes, Licenses and Permits................. 487 Property and Liability Insurance (Hazard)................. 18,242 Fidelity Bond Insurance................................... 204 Workmen's Compensation.................................... 9441 Health Insurance & Other Employee Benefits................ 6,752 Other Insurance (specify)................................. -------- Total Taxes and Insurance......................... 76,052 Financial Expenses 6800 Interest on Bonds Payable................................. Interest on Mortgage Payable.............................. 115,250 Interest on Notes Payable (Long-Term)..................... Interest on Notes Payable (Short-Term).................... Mortgage Insurance Premium/Service Charge................. 7,381 Miscellaneous Financial Expenses.......................... -------- Total Financial Expenses.......................... 122,631
F-20 3890 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- -------- Elderly & Congregate Service Expenses 6900 Total Service Expenses - Schedule Attached........ -------- Total Cost of Operations before Depreciation...... 573,791 -------- Profit (Loss) before Depreciation................. 155,282 Depreciation (Total) -- 6600 (specify).................... (73,048) -------- Operating Profit or (Loss)........................ 82,234 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... Legal Expenses (Entity)................................... Taxes (Federal-State-Entity).............................. Other Expenses (Entity)................................... -------- Total Corporate Expenses -------- Net Profit or (Loss).............................. $ 82,234 ========
See accompanying notes. F-21 3891 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1996 (Deficit) at December 31, 1995.............................. $(384,479) Net income.................................................. 82,234 Distributions............................................... (4,153) --------- (Deficit) at December 31, 1996.............................. $(306,398) =========
See accompanying notes. F-22 3892 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Source of funds Operations: Revenue: Rental income.......................................... $666,465 Other: Legal and late fees.................................. $ 7,813 Cleaning and damage.................................. 4,926 Deposits forfeited................................... 6,250 Interest income...................................... 3,755 Other revenue........................................ 8,912 31,656 -------- -------- 698,121 Expenses: Administrative......................................... 55,941 Management fee......................................... 47,992 Bookkeeper fee......................................... 5,712 Operating expenses..................................... 33,800 Payrolls............................................... 90,021 Maintenance fees....................................... 114,641 Taxes -- payroll....................................... 7,909 Taxes -- real estate................................... 32,692 Property insurance..................................... 19,011 Fidelity bond.......................................... 204 Workmen's compensation................................. 9,441 Health insurance....................................... 6,752 Interest on mortgage note.............................. 115,066 Mortgage insurance premium............................. 6,645 Miscellaneous taxes and license........................ 487 546,314 -------- -------- Net cash provided by operating activities................... 151,807 Investing activities Change in partnership cash.................................. 2,732 Change in restricted deposits and funded reserves........... (3,079) Purchase of fixed assets.................................... (59,292) -------- Net cash (used) for investing activities.................... (59,639) Financing activities Reduction of long-term debt................................. $(39,575) Distributions............................................... (4,153) -------- Net cash (used) for financing activities.................... (43,728) Increase in unrestricted cash............................... 48,440 Unrestricted cash at December 31, 1995...................... 97,320 -------- Unrestricted cash at December 31, 1996...................... $145,760 ========
F-23 3893 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS -- (CONTINUED) Operating activities Net income.................................................. $ 82,234 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 73,048 Changes in operating assets and liabilities: Prepaid expenses....................................... (33) Deposits held in trust................................. (8,430) Tenant accounts receivable............................. (840) Accounts payable....................................... (1,327) Rent received in advance............................... (1,459) Accrued interest -- mortgage........................... 184 Tenant security deposits............................... 8,430 -------- Net cash provided by operating activities................... $151,807 ========
See accompanying notes. F-24 3894 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Augusta, Georgia and operates thereon an apartment complex of 136 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by an accelerated method over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. F-25 3895 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $12,897 until July 2012, including interest at 8.5%, to Reilly Mortgage Group. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1997....................................................... $42,994 1998....................................................... 46,795 1999....................................................... 50,931 2000....................................................... 55,433 2001....................................................... 60,333
During the year, the Partnership incurred interest costs on the mortgage note of $115,250 and paid interest costs of $115,066. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT ------------- ------------------- ------- Insignia Management Group........................ Management fee $47,992 Insignia Management Group........................ Bookkeeper fee 5,712
NOTE 4 EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-26 3896 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million or $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 3897 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for P-2 3898 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months P-3 3899 ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 3900 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 3901 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 3902 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 3903 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 3904 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 3905 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 3906 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) 0 -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 3907 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 3908 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 3909 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 3910 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 3911 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 3912 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 3913 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 3914 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 3915 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 3916 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 3917 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 3918 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 3919 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 3920 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 3921 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 3922 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 3923
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 3924 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 3925
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 3926 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 3927 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 3928 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 3929
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 3930 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 3931 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 3932 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 3933
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 3934 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 3935 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 3936 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 3937 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 3938 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 3939 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 3940 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 3941 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 3942 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 3943 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 3944 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 3945 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 3946 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Salem Arms of Augusta L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Salem Arms of Augusta L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $117 in cash, or 3.25 Common OP Units of the Purchaser, or 4.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 3947 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we revised the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 3948 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 3949 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 3950
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 3951
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 3952
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 3953
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 3954 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 3955 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Shaker Square, LP in exchange for your choice of: 2,656 of our 8.0% Class Two Partnership Preferred Units; 1,716.25 of our Partnership Common Units; or $66,400.00 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 24% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $66,400.00 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3956 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Shaker Square, LP................................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Prorations................................... S-59 Fractional OP Units.......................... S-59
i 3957
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 3958 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties Inc. & Residual Equities, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $6,140,000, less approximately $179,350 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 3959 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 3960 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 3961 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 3962 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's S-5 3963 expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of S-6 3964 $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,312 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,290.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. S-7 3965 - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 3966 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 660,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership properties................... $ 6,140,000 Plus: Cash and cash equivalents............................. 164,322 Plus: Other partnership assets, net of security deposits.... 351,450 Less: Mortgage debt, including accrued interest............. (3,562,255) Less: Accounts payable and accrued expenses................. (79,529) Less: Other liabilities..................................... 0 ----------- Partnership valuation before taxes and certain costs........ 3,013,988 Less: Disposition fees...................................... (25,138) Less: Extraordinary capital expenditures and deferred maintenance............................................... (179,350) Less: Closing costs......................................... (153,500) ----------- Estimated net valuation of your partnership................. 2,656,000 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 2,656,000 Total number of units............................. 40.0 ----------- Estimated valuation per unit................................ $ 66,400 =========== Cash consideration per unit................................. $ 66,400 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400 by the $25 liquidation preference of each Preferred OP Unit to get 2,656 Preferred OP Units per unit. S-9 3967 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400 by a price of $38.69 to get 1,716.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership; The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT --------- Cash offer consideration.................................... $ 66,400 Partnership Preferred Units................................. $ 66,400 Partnership Common Units.................................... $ 66,400 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 66,400 Estimated going concern value............................. $ 49,735 Net book value (deficit).................................. $(584,112)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 3968 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Shaker Square, LP is a Delaware limited partnership which was formed on October 16, 1985 for the purpose of owning and operating a single property located in Whitehall, Ohio, known as "Shaker Square Apartments." The property consists of 194 units. Your partnership has no employees. As of September 30, 1998, there were 40 units of limited partnership interest issued and outstanding, which were held of record by 35 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 40 limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $7,807.50 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in July, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,319,331, payable to Marine Midland and Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 3969 THE OFFER In exchange for each of your units, we are offering you a choice of: - 2,656 of our Class Two Partnership Preferred Units; - 1,716.25 of our Partnership Common Units; or - $66,440.00 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 24% of the outstanding 40 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,656 Preferred OP Units, 1,716.25 Common OP Units, or $66,400.00 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 24% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 3970 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 3971 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $66,400.00 in cash, 2,656 Preferred OP Units or 1,716.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I S-14 3972 Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $66,400. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $23,798 for the fiscal year ended December 31, 1998. The property manager received management fees of $65,757 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $630,800 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 3973 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 3974
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 3975 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 3976
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 3977 SUMMARY FINANCIAL INFORMATION OF SHAKER SQUARE, L.P. The summary financial information of Shaker Square, L.P. for the 9 months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Shaker Square, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on historical information for which 1997 has been audited. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements."
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... $ 979,859 $ 967,930 $1,299,815 $1,221,122 $1,151,523 $1,195,937 $1,120,177 Net Income/(Loss)................... 80,411 82,421 68,046 (48,591) (62,225) 49,211 12,241 Net Income/(Loss) per limited partnership unit.................. 1,769 1,813 1,497 (1,069) (1,369) 1,083 269 Distributions per limited partnership unit.................. -- -- -- 2,565 2,200 2,245 --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 264,044 $ 165,416 $ 164,322 $ 154,424 $ 294,869 $ 384,219 $ 356,310 Real Estate, Net of Accumulated Depreciation...................... 2,914,953 3,029,174 3,059,174 3,130,587 3,234,635 3,313,210 3,422,088 Total Assets........................ 3,651,539 3,636,950 3,665,601 3,643,843 3,896,716 4,096,597 4,198,244 Notes Payable....................... 3,343,457 3,413,761 3,398,042 3,473,228 3,542,130 3,605,272 3,663,137 General Partners' Capital/(Deficit)... 1,322 840 517 (163) 1,489 3,111 3,640 Limited Partners' Capital/(Deficit)... 130,833 83,143 51,228 (16,138) 147,413 308,037 360,338 Partners' Capital/(Deficit)........... 132,155 83,983 51,745 (16,301) 148,902 311,148 363,978 Total Distributions................... -- -- -- 116,612 100,021 102,041 -- Book value per limited partnership unit................................ 2,937 1,866 1,150 (362) 3,309 6,914 8,088 Net increase (decrease) in cash and cash equivalents.................... 99,721 10,993 9,898 (140,445) (89,350) 27,909 356,310 Net cash provided by operating activities.......................... 202,015 154,454 265,060 175,078 208,759 281,584 (41,704) Ratio of earnings to fixed charges.... 1.20/1 1.47/1 1.20/1 0.85/1 0.91/1 1.15/1 1.04/1 LP Units Outstanding.................. 45 LP %.................................. 99% OP%................................... 1%
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING [SHAKER SQUARE, PARTNERSHIP LP] ------------ ----------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ----------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $4,290.63 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $5,312.00 $ 0
S-20 3978 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 3979 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth 6,140,000 less approximately 179,350 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 3980 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 3981 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 3982 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 3983 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 3984 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.74% interest, consisting of a 1.24% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 3985 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 3986 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's [property] would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has decreased from $100,283.00 for the nine months ended September 30, 1997, to $80,411.00 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the then outstanding units of all of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale S-29 3987 transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,312 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 3988 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,290.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 3989 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Shaker Square, L.P....................... $660,012 10.75% $6,140,000 ----------
(1) The total net operating income is equal to total revenues of $1,291,116, less total expenses of $572,904 and recurring replacement costs of $58,200. S-32 3990 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,656,000. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 660,000 Capitalization rate......................................... 10.75% ---------- Gross valuation of partnership properties................... $6,140,000 Plus: Cash and cash equivalents............................. 164,322 Plus: Other partnership assets, net of security deposits.... 351,450 Less: Mortgage debt, including accrued interest............. (3,562,255) Less: Accounts payable and accrued expenses................. (79,529) Less: Other liabilities..................................... 0 ---------- Partnership valuation before taxes and certain costs........ 3,013,988 Less: Disposition fees...................................... (25,138) Less: Extraordinary capital expenditures and deferred maintenance............................................... (179,350) Less: Closing costs......................................... (153,500) ---------- Estimated net valuation of your partnership................. 2,656,000 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ---------- Estimated net valuation of units............................ 2,656,000 Total number of units............................. 40.0 ---------- Estimated valuation per unit................................ $ 66,400 ---------- Cash consideration per unit................................. $ 66,400 ----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $66,400.00 by the $25 liquidation preference of each Preferred OP Unit to get 2,656 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400.00 by a price of $38.69 to get 1,716.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,656,000 or .47% is the net valuation of your partnership. S-33 3991 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $100,283.00 for the nine months ended September 30, 1997 to $80,411.00 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 3992 11. The estimated unit value of $66,400, based on a total estimated value of your partnership's property of $6,140,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $5,312.00 per year on the number of Preferred OP Units, or distributions of $4,290.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 3993 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 3994 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT --------- Cash offer price............................................ $ 66,400 Partnership preferred units................................. 66,400(1) Partnership common units.................................... 66,400(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 66,400 Estimated going concern value............................. $ 49,735 Net book value (deficit).................................. $(584,112)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 3995 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $49,735 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book (deficit) per unit is $584,112 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $62,013 per unit, going concern value of $45,962 per unit and liquidation value of $58,356 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 3996 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(4,387), $(20,438) and $(8,044). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 3997 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SHAKER SQUARE ------------- Total Revenues.............................................. $1,310,586 Operating Expenses.......................................... (632,736) Replacement Reserves -- Net................................. (80,398) Debt Service................................................ (376,436) Capital Expenditures........................................ (158,500) ---------- Net Cash Flow..................................... $ 62,516 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. S-40 3998 In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $179,350. Stanger observed that your partnership liquidation value of $2,656,000 was divided by the total units outstanding of 40 to achieve the liquidation value per unit of $66,400. S-41 3999 Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $660,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $50,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.3%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 40 to achieve management's estimate of going concern value of $49,735 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $66,400 per unit is equal to management's estimate of liquidation value, and reflects a 33% premium to management's estimate of going concern value of $49,735. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year after the closing of the transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0% Stanger utilized deferred maintenance S-42 4000 estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (approximately 13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $62,013, $45,962, and $58,356 representing (discounts) to the offer price of (6.6%), (30.8%), and (13.8%). See "Fairness of the Offer -- of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. S-43 4001 Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 4002 YOUR PARTNERSHIP GENERAL Shaker Square, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 35 limited partners of your partnership and a total of 40 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 16, 1985 for the purpose of owning an apartment property located in Whitehall, Ohio, known as "Shaker Square Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property consists of 194 apartment units. There are 194 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 95.64% in 1998, 95.88% in 1997 and 95.88% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $179,350 and are intended to be paid for out of cash flow or borrowings. Renovation items include heating, ventilation and air conditioning systems, electrical, sidewalks, drives, parking lot, and fencing. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $524 $495 $467 $490 $463
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $103,208 of $1,669,580 of assessed valuation with a current yearly tax rate of 6.18%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 6.49% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your S-45 4003 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $536, respectively, at December 31, 1998, compared to 96% and $489, respectively, at December 31, 1997. In addition/particular, the general partner noted that it expects to spend approximately $179,350 for capital improvements at the property in 1999 to repair the property's HVAC, sidewalks, parking lots and fencing. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,319,331, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the S-46 4004 general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,656,000 of limited partnership units in 1985 for $66,400 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonable within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 4005 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $66,400.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $ 0 $ 0 1994................................... 2,551 2,041 1,276 25,000 1995................................... 2,451 2,000 1,226 24,505 1996................................... 2,915 2,332 1,458 28,570 1997................................... 0 0 0 0 1998................................... 0 0 0 0 ------ ------ ------ ------- Total........................ $7,917 $6,373 $3,960 $78,075 ====== ====== ====== =======
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.00% 0 1995......................... 0 0.00% 0 1996......................... 0 0.00% 0 1997......................... 0.5 1.41% 1 1998......................... 0 0.00% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.74% interest in your partnership, including .5 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 4006 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $39,992 1995........................................................ 41,022 1996........................................................ 44,648 1997........................................................ 43,130 1998........................................................ 23,798
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $58,606 1995........................................................ 57,203 1996........................................................ 61,478 1997........................................................ 64,410 1998........................................................ 65,757
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 4007 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SHAKER SQUARE, PARTNERS, LTD. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 264,044 $ 165,416 $ 164,322 $ 154,424 $ 294,869 $ 384,219 $ 356,310 Land & Building............... 5,959,599 5,815,911 5,911,892 5,731,915 5,601,904 5,446,960 5,373,191 Accumulated Depreciation...... (3,044,646) (2,786,737) (2,852,718) (2,601,328) (2,367,271) (2,153,750) (1,951,103) Other Assets.................. 472,542 442,360 442,105 358,802 367,212 399,168 419,846 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 3,651,539 $ 3,636,950 $ 3,663,601 $ 3,643,843 $ 3,896,716 $ 4,096,397 $ 4,198,244 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 3,243,457 $ 3,413,761 $ 3,398,042 $ 3,473,228 $ 3,542,130 $ 3,605,272 $ 3,663,137 Other Liabilities............. 175,927 139,206 215,814 186,916 205,684 180,177 171,129 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 3,519,384 $ 3,552,967 $ 3,613,856 $ 3,660,144 $ 3,747,814 $ 3,785,449 $ 3,834,266 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit).... $ 132,155 $ 83,983 $ 51,745 $ (16,301) $ 148,902 $ 311,148 $ 363,978 =========== =========== =========== =========== =========== =========== ===========
SHAKER SQUARE, PARTNERS, LTD. ------------------------------------------------------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- Rental Revenue.................... $922,644 $906,822 $1,220,424 $1,151,592 $1,087,550 $1,139,967 $1,078,463 Other Income...................... 57,215 61,108 79,391 69,530 63,973 55,970 41,714 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $979,859 $967,930 $1,290,815 $1,221,123 $1,151,523 $1,195,937 $1,120,177 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................ $370,322 $361,897 $ 518,119 $ 569,524 $ 548,462 $ 493,768 $ 451,948 General & Administrative.......... 39,786 32,870 48,509 49,378 48,374 41,242 61,048 Depreciation...................... 191,928 185,409 251,389 234,057 213,521 202,647 194,772 Interest Expense.................. 223,755 230,846 314,859 321,143 326,902 332,332 321,036 Property Taxes.................... 73,657 74,487 98,893 95,611 76,489 76,737 79,132 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $899,448 $885,509 $1,231,769 $1,269,713 $1,213,748 $1,146,726 $1,107,936 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (loss) before extraordinary items............. $ 80,411 $ 82,421 $ 68,046 $ (48,591) $ (62,225) $ 49,211 $ 12,241 Extraordinary Items............... -- -- -- -- -- -- -- -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)................. $ 80,411 $ 82,421 $ 68,046 $ (48,591) $ (62,225) $ 49,211 $ 12,241 ======== ======== ========== ========== ========== ========== ========== Net Income per limited partnership unit............................ $ 1,769 $ 1,813 $ 1,497 $ (1,069) $ (1,369) $ 1,083 $ 269 ======== ======== ========== ========== ========== ========== ========== Distributions per limited partnership unit................ $ -- $ -- $ -- $ 2,565 $ 2,200 $ 2,245 $ -- ======== ======== ========== ========== ========== ========== ==========
S-50 4008 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized net income of $80,411 for the nine months ended September 30, 1998, compared to net income of $82,421 for the nine months ended September 30, 1997. The decrease in net income of $2,010, or 2.44% was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $977,979 for the nine months ended September 30, 1998, compared to $969,810 for the nine months ended September 30, 1997, an increase of $8,169, or .84%. The Partnership increased rental rates by an average of 1.7%. However, rental rate increases were offset by other income decreases related to decreased cancellation fees. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $370,322 for the nine months ended September 30, 1998, compared to $361,897 for the nine months ended September 30, 1997, an increase of $8,425 or 2.3%. Management expenses totaled $48,903 for the nine months ended September 30, 1998, compared to $48,070 for the nine months ended September 30, 1997, an increase of $833, or 1.73% as management fees are calculated as a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $39,786 for the nine months ended September 30, 1998 compared to $32,870 for the nine months ended September 30, 1997, an increase of $6,916 or 21.04%. INTEREST AND EXPENSES Interest expense which includes the amortization of deferred financing costs, totaled $223,755 for the nine months ended September 30, 1998, compared to $230,846 for the nine months ended September 30, 1997, a decrease of $7,091, or 3.10%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $68,046 for the year ended December 31, 1997, compared to a net loss of $48,591 for the year ended December 31, 1996. The increase in net income of $116,637, or 240.04% was primarily the result of increased revenue and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,299,815 for the year ended December 31, 1997, compared to $1,221,122 for the year ended December 31, 1996, an increase of $78,693, or 6.44%. The Partnership increased rental rates by an average of 2.8% while occupancy increased .2% to S-51 4009 95.5%. Additionally other income increased by $10,033 or 19.87% due to increased income from lease cancellation fees and laundry income. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $518,119 for the year ended December 31, 1997, compared to $569,524 for the year ended December 31, 1996, a decrease of $51,405 or 9.03%. This is due primarily to a reduction to non-capitalized building improvements and repairs. In 1996, major exterior building improvements were undertaken, thus reducing the amount of 1997 expenses by $47,000. GENERAL AND ADMINISTRATIVE EXPENSES General administrative expenses totaled $48,509 for the year ended December 31, 1997 compared to $49,378 for the year ended December 31, 1996, a decrease of $869 of 1.76%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $314,859 for the year ended December 31, 1997, compared to $321,143 for the year ended December 31, 1996, a decrease of $6,284, or 1.96%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized a net loss of $48,591 for the year ended December 31, 1996, compared to a net loss of $62,225 for the year ended December 31, 1995. The decrease in net loss of $13,634, or 21.48% was primarily the result of increased revenue over the increase in expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,221,122 for the year ended December 31, 1996, compared to $1,151,523 for the year ended December 31, 1995, an increase of $69,599, or 6.04%. This is primarily due to increased occupancy levels from 90% in 1995 to 95% in 1996. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants) contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $569,524 for the year ended December 31, 1996, compared to $548,462 for the year ended December 31, 1995, an increase of $21,062 or 3.84%. This is primarily due to gutter repair, other maintenance expenses of $5,800 and exterior building maintenance expenses of $45,000. Management expenses totaled $61,478 for the year ended December 31, 1996, compared to $57,203 for the year ended December 31, 1995, an increase of $4,275, or 7.47%. The increase resulted from increased revenues since management fees are calculated based on a percentage of rental revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $49,378 for the year ended December 31, 1996 compared to $48,374 for the year ended December 31, 1995, an increase of $1,004 or 2.08%. S-52 4010 INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $321,143 for the year ended December 31, 1996, compared to $326,902 for the year ended December 31, 1995, a decrease of $5,759, or 1.76%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $264,044 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $135,645, was $3,343,457. The mortgages require monthly payments of approximately $31,370 until November 2002, at which time a balloon payment of approximately $3,053,358 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 4011 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 24% of the outstanding 40 units of your partnership (up to 10.8 units) for consideration per unit of (i) 2,656 Preferred OP Units, (ii) 1,716.25 Common OP Units, or (iii) $66,400 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 4012 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 4013 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 4014 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 4015 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 4016 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 24% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 24%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 4017 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 4018 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 4019 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 4020 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 4021 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 4022 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 4023 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 4024 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 4025 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 4026 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 4027 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 4028 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating finance and operate your partnership's Partnership is to conduct any business that property. Subject to restrictions contained may be lawfully conducted by a limited in your partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all acts necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 4029 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership are The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 40 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and have subsidiaries or other persons in which it other transactions with per- has an equity investment,
S-72 4030 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sons who are partners or who are affiliates and such persons may borrow funds from the of partners. Any and all compensation paid AIMCO Operating Partnership, on terms and to such persons in connection with services conditions established in the sole and performed for your partnership must be absolute discretion of the general partner. commensurate with that which would be paid To the extent consistent with the business to an independent person for similar purpose of the AIMCO Operating Partnership services and all agreements must be in and the permitted activities of the general writing. Your partnership may not make loans partner, the AIMCO Operating Partnership may to any partners but the general partner may transfer assets to joint ventures, limited make loans to your partnership; provided liability companies, partnerships, that the interest and fees received by the corporations, business trusts or other general partner in connection with such business entities in which it is or thereby loans are not in excess of the amounts which becomes a participant upon such terms and would be charged by an unrelated bank and subject to such conditions consistent with the general partner does not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each Limited Partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partner. Your partnership furnishes such in- business, residence or mailing address of formation to any limited partner requesting the general partner and each other OP the same in writing, upon payment of all Unitholder. costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The general partner of your partnership All management powers over the business and manages and controls your partnership and affairs of the AIMCO Operating Partnership all aspects of its business. The general are vested in AIMCO-GP, Inc., which is the partner has full, exclusive and complete general partner. No OP Unitholder has any authority and discretion in the management right to participate in or exercise control and control of the business and the or management power over the busi- activities
S-73 4031 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP and operations of your partnership. In the ness and affairs of the AIMCO Operating exercise of its authority, it makes all Partnership. The OP Unitholders have the decisions affecting the conduct of the right to vote on certain matters described business of your partnership. The general under "Comparison of Your Units and AIMCO OP partner possesses and may enjoy and exercise Units -- Voting Rights" below. The general all of the rights and powers of general partner may not be removed by the OP partner as provided by applicable laws, Unitholders with or without cause. except to the extent any such rights may be limited or restricted by express provisions In addition to the powers granted a general of your agreement. Limited partners may not partner of a limited partnership under take part in the management of the business, applicable law or that are granted to the affairs and operations of your partnership, general partner under any other provision of transact any business for your partnership, the AIMCO Operating Partnership Agreement, have any power, right or authority to enter the general partner, subject to the other into any agreement, execute or sign provisions of the AIMCO Operating documents for, make representation on behalf Partnership Agreement, has full power and of nor to otherwise act so as to bind your authority to do all things deemed necessary partnership in any manner. or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship, excepting only acts of malfeasance, indemnification of AIMCO, or any director or gross negligence or actual officer of AIMCO (in its capacity as the misrepresentation. In addition, the general previous general partner of the AIMCO partner and its affiliates are entitled to Operating Partnership), the general partner, indemnification by your partnership for any any officer or director of general partner and all acts performed by them in the good or the AIMCO Operating Partnership and such faith belief that the act or omission was in other persons as the general partner may the best interests of your partnership and designate from and against all losses, which are reasonable within the scope of the claims, damages, liabilities, joint or authority conferred upon them by your several, expenses (in-
S-74 4032 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership's agreement of limited cluding legal fees), fines, settlements and partnership or by your partnership, other amounts incurred in connection with excepting only acts of malfeasance, gross any actions relating to the operations of negligence or actual misrepresentation; pro- the AIMCO Operating Partnership, as set vided, however, that such indemnity will be forth in the AIMCO Operating Partnership paid out of and only to the extent of Agreement. The Delaware Limited Partnership partnership assets. Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause and the business and affairs of the AIMCO elect a successor general partner upon a Operating Partnership. The general partner vote of the limited partners owning a may not be removed as general partner of the majority of the outstanding units. A general AIMCO Operating Partnership by the OP partner may not transfer, assign, sell, Unitholders with or without cause. Under the withdraw or otherwise dispose of its AIMCO Operating Partnership Agreement, the interest unless it obtains the prior written general partner may, in its sole discretion, consent of those persons owning more than prevent a transferee of an OP Unit from 50% of the units and satisfies other becoming a substituted limited partner conditions set forth in your partnership's pursuant to the AIMCO Operating Partnership agreement of limited partnership. Such Agreement. The general partner may exercise consent is also necessary for the approval this right of approval to deter, delay or of a new general partner. A limited partner hamper attempts by persons to acquire a may not transfer his interests without the controlling interest in the AIMCO Operating written consent of the general partners. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partners to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the outstanding partnership and as required by law. Amend- Common OP Units, excluding AIMCO ments of specified provisions of your partnership's
S-75 4033 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership may be made and certain other limited exclusions (a only with the prior written consent of all "Majority in Interest"). Amendments to the partners. Other amendments must be approved AIMCO Operating Partnership Agreement may be by the limited partners owning more than 50% proposed by the general partner or by of the units. holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $19,000 annually and may receive its capacity as general partner of the AIMCO other fees for additional services. Operating Partnership. In addition, the Moreover, the general partner or certain AIMCO Operating Partnership is responsible affiliates may be entitled to compensation for all expenses incurred relating to the for additional services rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of the losses of liability of the OP Unitholders for the your partnership beyond its obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-76 4034 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner has relevant partnership agreement, Delaware law fiduciary responsibilities to your generally requires a general partner of a partnership in respect of the funds and Delaware limited partnership to adhere to assets of your partnership and will take all fiduciary duty standards under which it owes actions which may be necessary or its limited partners the highest duties of appropriate for the proper maintenance and good faith, fairness and loyalty and which operation of your partnership's property in generally prohibit such general partner from accordance with the provisions of your taking any action or engaging in any partnership's agreement of limited transaction as to which it has a conflict of partnership and in accordance with interest. The AIMCO Operating Partnership applicable laws and regulations. The general Agreement expressly authorizes the general partner will manage and control the affairs partner to enter into, on behalf of the of your partnership to the best of its AIMCO Operating Partnership, a right of abilities and use its best efforts to carry first opportunity arrangement and other out the business of your partnership as set conflict avoidance agreements with various forth in your partnership's agreement of affiliates of the AIMCO Operating limited partnership. However, the general Partnership and the general partner, on such partner may engage in or hold interests in terms as the general partner, in its sole other business ventures of every kind and and absolute discretion, believes are description for its own account including, advisable. The AIMCO Operating Partnership without limitation, ventures such as those Agreement expressly limits the liability of undertaken by your partnership and your the general partner by providing that the partnership and the partners will have no general partner, and its officers and rights in and to such independent business directors will not be liable or accountable ventures or the income and profits derived in damages to the AIMCO Operating therefrom. Partnership, the limited partners or as- signees for errors in judgment or mistakes In general, your partnership's agreement of of fact or law or of any act or omission if limited partnership and the AIMCO Operating the general partner or such director or Partnership Agreement have limitations on officer acted in good faith. See the liability of the general partner but "Description of OP Units -- Fiduciary such limitations differ and provide more Responsibilities" in the accompanying protection for the general partner of the Prospectus. AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that consti-
S-77 4035 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refi-
S-78 4036 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agreement Units. See "Description of Operating Partnership of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your partnership; outstanding, in addition to proceedings, an assignment remove a general partner for any other vote or consent of for the benefit of creditors cause; approve certain partners required by law or and certain transfers by the changes of or transfers by a by the AIMCO Operating general partner of its general partner and approve Partnership Agreement, the interest in the AIMCO or disapprove the sale of affirmative vote or consent Operating Partnership or the all or substantially all of of holders of at least 50% admission of a successor the assets of your of the outstanding Preferred general partner. partnership. OP Units will be necessary A general partner may cause for effecting any amendment Under the AIMCO Operating the dissolution of your of any of the provisions of Partnership Agreement, the partnership by retiring when the Partnership Unit general partner has the there are no remaining Designation of the Preferred power to effect the general partners unless, the OP Units that materially and acquisition, sale, transfer, limited partners owning more adversely affects the rights exchange or other than 50% of the then or preferences of the disposition of any assets of outstanding units elect a holders of the Preferred OP the AIMCO Operating new general partner who Units. The creation or Partnership (including, but decides to continue your issuance of any class or not limited to, the exercise partnership with the series of partnership units, or grant of any conversion, approval of the limited including, without option, privilege or partners owning more than limitation, any partner- subscription right or any 50% of the then outstanding ship units that may have other right available in units. rights senior or superior to connection with any assets the Preferred OP Units, at any time held by the In general, you have greater shall not be deemed to AIMCO Operating Partnership) voting rights in your materially adversely affect or the merger, partnership than you will the rights or preferences of consolidation, have as an OP Unitholder. OP the holders of Preferred OP reorganization or other Unitholders can not remove Units. With respect to the combination of the AIMCO the general partner of the exercise of the above Operating Partnership with AIMCO Operating Partnership. described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an
S-79 4037 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion cash funds as the general and from time to time on or determine, of Available Cash partners may, in their dis- after the fifth anniversary (as defined in the AIMCO cretion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your annual interest rate then on the record date es- partnership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective most recently issued AIMCO
S-80 4038 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS non-convertible preferred interests in the AIMCO stock which ranks on a Operating Partnership on parity with its Class H such record date. Holders of Cumulative Preferred Stock. any other Preferred OP Units Such distributions will be issued in the future may cumulative from the date of have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-81 4039 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) the interest securities exchange. The transferability of the OP being acquired by the Preferred OP Units are Units. Until the expiration assignee consists of an subject to restrictions on of one year from the date on integral multiple of half transfer as set forth in the which an OP Unitholder units, (2) a written assign- AIMCO Operating Partnership acquired OP Units, subject ment has been duly executed Agreement. to certain exceptions, such and acknowledged by the OP Unitholder may not assignor and assignee, (3) Pursuant to the AIMCO transfer all or any por- the written approval of the Operating Partnership tion of its OP Units to any general partners which may Agreement, until the transferee without the be withheld in the sole and expiration of one year from consent of the general absolute discretion of the the date on which a holder partner, which consent may general partners has been of Preferred OP Units be withheld in its sole and granted, (4) the assignor or acquired Preferred OP Units, absolute discretion. After the assignee pays a transfer subject to certain the expiration of one year, fee, (5) the transfer will exceptions, such holder of such OP Unitholder has the not result in a termination Preferred OP Units may not right to transfer all or any of your partnership for tax transfer all or any portion portion of its OP Units to purposes and (6) the of its Preferred OP Units to any person, subject to the assignor and assignee have any transferee without the satisfaction of certain con- complied with such other consent of the general ditions specified in the conditions as set forth in partner, which consent may AIMCO Operating Partnership your partnership's agreement be withheld in its sole and Agreement, including the of limited partnership. absolute discretion. After general partner's right of the expiration of one year, first refusal. See There are no redemption such holders of Preferred OP "Description of OP Units -- rights associated with your Units has the right to Transfers and Withdrawals" units. transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-82 4040 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 4041 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 4042 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 4043 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 4044 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 4045 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 4046 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 4047 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set apart for
S-90 4048 PREFERRED OP UNITS CLASS I PREFERRED STOCK When distributions are not paid in full upon payment, except in limited circumstances, no the Preferred OP Units or any Parity Units, dividends may be declared or paid or set all distributions declared upon the apart for payment by AIMCO and no other Preferred OP Units and any Parity Units will distribution of cash or other property may be declared ratably in proportion to the be declared or made, directly or indirectly, respective amounts of distributions by AIMCO with respect to any shares of Class accumulated, accrued and unpaid on the I Junior Stock, nor shall any shares of Preferred OP Units and such Parity Units. Class I Junior Stock be redeemed, purchased Unless full cumulative distributions on the or otherwise acquired for any consideration, Preferred OP Units have been declared and nor shall any other cash or other property paid, except in limited circumstances, no be paid or distributed to or for the benefit distributions may be declared or paid or set of holders of shares of Class I Junior apart for payment by the AIMCO Operating Stock. See "Description of Class I Preferred Partnership and no other distribution of Stock -- Dividends." cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, the charitable beneficiaries.
S-91 4049 PREFERRED OP UNITS CLASS I PREFERRED STOCK cash in an amount equal to the Liquidation Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 4050 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner receives a $19,000 annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $44,648 in 1996, $43,130 in 1997 and $23,798 in 1998. The property manager received management fees of $61,478 in 1996, $64,410 in 1997 and $65,757 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 4051 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $630,800 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 4052 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Shaker Square, Limited as of December 31, 1997 and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 4053 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996 (unaudited)............................................... F-8 Statements of Operations and Changes in Partners' Capital for the years ended December 31, 1997 and 1996 (unaudited)............................................... F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited)................................. F-10 Notes to Financial Statements............................... F-11
F-1 4054 SHAKER SQUARE, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS
Cash and cash equivalents................................... $ 264,000 Other assets................................................ 472,542 Investment property: Land...................................................... $ 425,000 Building and related personal property.................... 5,534,599 ----------- 5,959,599 Less: accumulated depreciation............................ (3,044,646) 2,914,953 ----------- ---------- Total assets...................................... $3,651,539 ========== LIABILITIES AND PARTNERS' DEFICIT Liabilities and partners' capital: Other accrued liabilities................................. $ 175,927 Notes payable............................................. 3,343,457 Partners' deficit........................................... 132,155 ---------- Total liabilities and partners' deficit........... $3,651,539 ==========
See accompanying notes to the financial statements. F-2 4055 SHAKER SQUARE, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues Rental income............................................. $922,644 $906,822 Other income.............................................. 57,215 61,108 -------- -------- Total revenues.................................... 979,859 967,930 Expenses: Operating expenses........................................ 410,108 394,767 Depreciation expense...................................... 191,928 185,409 Interest expense.......................................... 223,755 212,984 Property tax expense...................................... 73,657 74,487 -------- -------- Total expenses.................................... 899,448 867,647 Net income........................................ $ 80,411 $100,283 ======== ========
See accompanying notes to the financial statements. F-3 4056 SHAKER SQUARE, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Operating Activities: Net Income................................................ $ 80,411 $100,283 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 191,928 185,409 Changes in accounts: Receivables and deposits and other assets............ (30,437) (83,528) Accounts Payable and accrued expenses................ (39,887) (47,710) -------- -------- Net cash provided by (used in) operating activities...................................... 202,015 154,454 -------- -------- Investing Activities: Property improvements and replacements.................... (47,707) (83,996) -------- -------- Net cash provided by (used in) investing activities....... (47,707) (83,996) -------- -------- Financing Activities: Payments on mortgage...................................... (54,585) (59,467) Partners' Distributions................................... (1) 1 -------- -------- Net cash provided by (used in) financing activities....... (54,586) (59,466) -------- -------- Net increase (decrease) in cash and cash equivalents...... 99,721 10,993 Cash and cash equivalents at beginning of period.......... 164,322 154,424 -------- -------- Cash and cash equivalents at end of period................ $264,044 $165,416 ======== ========
See accompanying notes to the financial statements. F-4 4057 SHAKER SQUARE, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Shaker Square, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 4058 SHAKER SQUARE, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 4059 INDEPENDENT AUDITORS' REPORT General Partners Shaker Square, Limited: We have audited the accompanying balance sheet of Shaker Square, Limited as of December 31, 1997, and the related statements of operations and changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a text 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shaker Square, Limited as of December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina December 9, 1998 F-7 4060 SHAKER SQUARE, LIMITED BALANCE SHEET ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Cash and cash equivalents................................... $ 164,322 $ 154,424 Receivables and deposits.................................... 160,914 80,281 Restricted escrows (Note B)................................. 206,537 198,048 Other assets................................................ 74,654 80,503 Investment properties (Note C): Land...................................................... 425,000 425,000 Buildings and related personal property................... 5,486,892 5,306,915 ----------- ----------- 5,911,892 5,731,915 Less accumulated depreciation.......................... (2,852,718) (2,601,328) ----------- ----------- 3,059,174 3,130,587 ----------- ----------- $ 3,665,601 $ 3,643,843 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 66,383 $ 33,409 Tenant security deposit liabilities....................... 23,761 28,942 Other liabilities......................................... 125,670 124,565 Mortgage notes payable (Note C)........................... 3,398,042 3,473,228 Partners' capital........................................... 51,745 (16,301) ----------- ----------- $ 3,665,601 $ 3,643,843 =========== ===========
See Accompanying Notes to Financial Statements F-8 4061 SHAKER SQUARE, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ----------- (UNAUDITED) Revenues: Rental income............................................. $1,220,424 $1,151,592 Other income.............................................. 79,391 69,530 ---------- ---------- Total revenues.................................... 1,299,815 1,221,122 ---------- ---------- Expenses: Operating (Note D)........................................ 518,119 569,524 General and administrative (Note D)....................... 48,509 49,378 Depreciation.............................................. 251,389 234,057 Interest.................................................. 314,859 321,143 Property taxes............................................ 98,893 95,611 ---------- ---------- Total expenses.................................... 1,231,769 1,269,713 ---------- ---------- Net income (loss)........................................... 68,046 (48,591) Distributions to partners................................... -- (116,612) Partners' (deficit) capital at beginning of year............ (16,301) 148,902 ---------- ---------- Partners' capital (deficit) at end of year.................. $ 51,745 $ (16,301) ========== ==========
See Accompanying Notes to Fiscal Statements F-9 4062 SHAKER SQUARE, LIMITED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 --------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)......................................... $ 68,046 $ (48,591) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 251,389 234,057 Amortization of discounts and loan costs............... 40,816 39,629 Change in accounts: Receivables and deposits............................. (80,633) 21,460 Other assets......................................... (7,759) -- Accounts payable..................................... 32,974 (21,237) Tenant security deposit liabilities.................. (5,181) 894 Other liabilities.................................... 1,105 1,575 --------- --------- Net cash provided by operating activities......... 300,757 227,787 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (179,977) (130,009) Net deposits to restricted escrows........................ (8,489) 1,359 --------- --------- Net cash used in investing activities............. (188,466) (128,650) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (102,393) (94,922) Distributions to partners................................. -- (116,612) --------- --------- Net cash used in financing activities............. (102,393) (211,534) --------- --------- Net increase (decrease) in cash and cash equivalents........ 9,898 (112,397) Cash and cash equivalents at beginning of year.............. 154,424 266,821 --------- --------- Cash and cash equivalents at end of year.................... $ 164,322 $ 154,424 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 274,043 $ 281,514 ========= =========
See Accompanying Notes to Financial Statements F-10 4063 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Shaker Square, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Certificate and Agreement of Limited Partnership dated October 16, 1985. The Partnerships owns and operates a 194 unit multi-family housing complex, Shaker Square Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $66,894 and $80,503, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-11 4064 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $206,537 and $198,048, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ----------- (UNAUDITED) First mortgage note payable in monthly installments of $30,610, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,430,162 $3,532,555 Second mortgage note payable in monthly installments of $760, interest only at 7.60%, principal due November 2002; collateralized by land and buildings...................... 119,949 119,949 ---------- ---------- Principal balance at year end............................... 3,550,111 3,652,504 Less unamortized discount................................... (152,069) (179,276) ---------- ---------- $3,398,042 $3,473,228 ---------- ----------
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 110,451 1999..................................................... 119,144 2000..................................................... 128,521 2001..................................................... 138,637 2002..................................................... 3,053,358 ---------- $3,550,111 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 4065 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ----------- (UNAUDITED) Management fee.............................................. $64,410 $61,478 Partnership administration fee.............................. $17,413 $18,996 Reimbursement for services of affiliates.................... $23,717 $22,921 Construction oversight costs................................ $ 2,000 $ 2,731
F-13 4066 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted, into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 4067 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 4068 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 4069 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4070 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4071 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 4072 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 4073 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4074 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4075 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4076 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 4077 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 4078 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 4079 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 4080 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4081 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4082 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4083 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4084 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4085 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4086 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4087 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4088 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4089 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4090 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4091 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4092 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4093
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4094 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4095
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4096 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 4097 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 4098 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 4099
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 4100 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 4101 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 4102 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 4103
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 4104 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 4105 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 4106 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 4107 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 4108 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 4109 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 4110 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 4111 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 4112 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 4113 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 4114 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 4115 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 4116 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Shaker Square L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Shaker Square L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $66,400 in cash, or 1,716.25 Common OP Units of the Purchaser, or 2,656 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 4117 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 4118 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 4119 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 4120
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 4121
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 4122
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 4123
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4124 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 4125 SUBJECT TO COMPLETION, DATED MARCH , 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Shannon Manor Apartments, a Limited Partnership in exchange for your choice of: 27.5 of our 8.0% Class Two Partnership Preferred Units; 17.75 of our Partnership Common Units; or $682 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $682 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for our ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 4126 TABLE OF CONTENTS
PAGE ---- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Shannon Manor Apartments, a Limited Partnership.... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-23 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ---- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-26 Background of the Offer...................... S-26 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60
i 4127
PAGE ---- Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84 Distributions................................ S-84
PAGE ---- Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4128 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, AmReal Corporation, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We value your property to be worth $8,375,000, less approximately $134,928 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 4129 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 4130 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2017 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 4131 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 4132 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-5 4133 Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage note is due in 2014. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $55.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. S-6 4134 - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $44.38 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately S-7 4135 receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 4136 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.75%, resulting in a final capitalization rate of 8.5%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 712,000 Capitalization rate......................................... 8.5% ----------- Gross valuation of partnership properties................... $ 8,375,000 Plus: Cash and cash equivalents............................. 125,254 Plus: Other partnership assets, net of security deposits.... 1,008,487 Less: Mortgage debt, including accrued interest............. (2,315,539) Less: Accounts payable and accrued expenses................. (8,793) Less: Other liabilities..................................... (21,457) ----------- Partnership valuation before taxes and certain costs........ 7,162,952 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (134,928) Less: Closing costs......................................... (209,375) ----------- Estimates net valuation of your partnership................. 6,818,649 Percentage of estimated net valuation allocated to holders of units.................................................. 96.49% ----------- Estimated net valuation of LP ownership..................... 6,579,314 Total LP units.................................... 9,649.0 ----------- Estimated valuation per unit................................ 682 =========== Cash consideration per unit................................. $ 682 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $682 by the $25 liquidation preference of each Preferred OP Unit to get 27.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $682 by a price of $38.69 to get 17.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 4137 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $682 Partnership Preferred Units................................. $682 Partnership Common Units.................................... $682 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $682 Net book value (deficit).................................. $ 27 Going Concern Value....................................... $607
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the S-10 4138 fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Shannon Manor Apartments, a Limited Partnership is a South Carolina limited partnership which was formed on December 22, 1972 for the purpose of owning and operating a single apartment property located in Durham, North Carolina, known as "Shannon Manor". Shannon Manor consists of 230 apartment units and was built in 1970. Your partnership has no employees. As of September 30, 1998, there were 9,649 units of limited partnership interest issued and outstanding, which were held of record by 17 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 9,649 limited partnership units in 1972. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $41.90 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on October 1, 2017, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,232,588, payable to USGI, Inc., which bears interest at the rate of 7.0%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 4139 THE OFFER In exchange for each of your units, we are offering you a choice of: - 27.5 of our Class Two Partnership Preferred Units; - 17.75 of our Partnership Common Units; or - $682 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. 100 units for purposes of this offer represents a 1% interest in your partnership. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 9,649 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 27.50 Preferred OP Units, 17.75 Common OP Units, or $682 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 4140 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 4141 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $682 in cash, 27.50 Preferred OP Units or 17.75 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 4142 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $682. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $8,500 for the fiscal year ended December 31, 1998. The property manager received management fees of $120,745 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,453,190 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 4143 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 4144
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) 19,045 19,594 20,758 Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 4145 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- --------- 120,368 142,400 --------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- --------- (913) (9,075) Minority interests in service company business............ -- (10) --------- --------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- --------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- --------- Net income........................................ $ 24,703 $ (36,125) ========= ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 4146
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 4147 SUMMARY FINANCIAL INFORMATION OF SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP The summary financial information of Shannon Manor Apartments, a Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Shannon Manor Apartments, a Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. The amounts for 1995, 1994 and 1993 are not included in the Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein. SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------- ------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ ------ ------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues...................................... $1,253 $1,186 $1,599 $1,523 $1,453 $1,368 $1,322 Net Income.......................................... $ 432 $ 313 $ 417 $ 411 $ 404 $ 340 $ 210 Net Income per limited partnership unit............. 43.22 31.30 41.65 0.04 40.34 34.01 20.97 Distributions per limited partnership unit.......... 0.00 3.63 0.00 0.00 0.02 0.01 0.01 Distributions per limited partnership unit (which represent a return of capital).................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ----------------- -------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- ------- ------- ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents.......................... $ 675 $ 169 $ 77 $ 71 $ 166 $ 238 $ 212 Real Estate, Net of Accumulated Depreciation....... $ 1,876 $ 1,948 $ 1,980 $ 1,840 $ 1,275 $ 1,211 $ 1,162 Total Assets....................................... $ 2,970 $ 2,628 $ 2,609 $ 2,377 $ 1,988 $ 1,803 $ 1,614 Notes Payable...................................... $ 2,246 $ 2,334 $ 2,316 $ 2,386 $ 2,452 $ 2,514 $ 2,571 Total Liabilities.................................... $ 2,306 $ 2,439 $ 2,352 $ 2,500 $ 2,499 $ 2,550 $ 2,614 General Partners Capital (Deficit)................... $ 5 $ (21) $ (10) $ (24) $ (38) $ (50) $ (57) Limited Partners Capital (Deficit)................... $ 659 $ 210 $ 267 $ (99) $ (473) $ (696) $ (943) ------- ------- ------- ------- -------- -------- -------- Partners' Capital (Deficit).......................... $ 664 $ 189 $ 257 $ (123) $ (511) $ (747) $ (1,000) Total Distributions.................................. $ 24 $ -- $ 36 $ 23 $ 168 $ 86 $ 109 Book value per limited partnership unit.............. $ 65.98 $ 14.88 $ 26.71 $ (9.87) $ (47.32) $ (69.63) $ (94.30) Net increase (decrease) in cash and cash equivalents........................................ $ 598 $ 98 $ 6 $ (95) $ (72) $ 26 $ (8) Net cash provided by operating activities............ $ 399 $ 357 $ 584 $ 569 $ 499 $ 440 $ 310 Ratio of earnings to fixed charges................... 4.43/1 2.94/1 3.54/1 3.45/1 3.34/1 2.92/1 2.08/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
SHANNON MANOR AIMCO APARTMENTS, OPERATING A LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $44.38 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $55.00 $ 0
S-20 4148 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON ---------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)........ $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter......................... 37 3/8 30 0.5625 0.5625 Third Quarter.......................... 41 30 15/16 0.5625 0.5625 Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter......................... 38 32 0.5625 0.5625 Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter......................... 29 3/4 26 0.4625 0.4625 First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter.......................... 22 18 3/8 0.4250 0.4250 Second Quarter......................... 21 18 3/8 0.4250 0.4250 First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 4149 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We value your property to be worth $8,375,000 although we believe the property needs approximately $134,928 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 4150 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 4151 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of October 1, 2017 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 4152 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 4153 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding S-26 4154 common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.1% interest, consisting of no limited partnership interest and a 2.1% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. S-27 4155 In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty under the mortgage on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. S-28 4156 Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $314,000 for the nine months ended September 30, 1997, to $432,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage note is due in August, 2014. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's property would require a vote of a majority the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity S-29 4157 would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $55.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an S-30 4158 annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $44.38 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." S-31 4159 VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.75%, resulting in a final capitalization rate of 8.5%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Shannon Manor Apartments $ 712,000 8.5% $ 8,375,000 ----------- Estimated Total Gross Property Value $ 8,375,000
- --------------- (1) The total net operating income is equal to total revenues of $1,599,000, less total expenses of $818,000 and recurring replacement costs of $69,000. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $5,504,399. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. S-32 4160 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 96.49% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 712,000 Capitalization rate......................................... 8.5% ----------- Gross valuation of partnership properties................... $ 8,375,000 Plus: Cash and cash equivalents............................. 125,254 Plus: Other partnership assets, net of security deposits.... 1,008,487 Less: Mortgage debt, including accrued interest............. (2,315,539) Less: Accounts payable and accrued expenses................. (8,793) Less: Other liabilities..................................... (21,457) ----------- Partnership valuation before taxes and certain costs........ 7,162,952 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (134,928) Less: Closing costs......................................... (209,375) ----------- Estimated net valuation of your partnership................. 6,818,649 Percentage of estimated net valuation allocated to holders of units.................................................. 96.49% ----------- Estimated net valuation of LP ownership..................... 6,579,314 Total LP units.................................... 9,649.0 ----------- Estimated valuation per unit................................ 682 =========== Cash consideration per unit................................. $ 682 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $682 by the $25 liquidation preference of each Preferred OP Unit to get 27.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $682 by a price of $38.69 to get 17.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $5,504,399 or .97% is the net valuation of your partnership. S-33 4161 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $313,000 for the nine months ended September 30, 1997 to $432,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 4162 11. The estimated unit value of $682, based on a total estimated value of your partnership's property of $7,600,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $55.00 per year on the number of Preferred OP Units, or distributions of $44.38 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 4163 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 4164 Under your partnership's agreement of limited partnership, the term of the partnership will continue until October 1, 2017, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $682 Partnership preferred units................................. 682(1) Partnership common units.................................... 682(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $682 Estimated going concern value............................. $605 Net book value (deficit).................................. $ 27
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 4165 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 14.5%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $607 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is only $27 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. STANGER'S ESTIMATE OF NET ASSET VALUE, GOING CONCERN VALUE AND LIQUIDATION VALUE In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $625 per unit, going concern value of $616 per unit and liquidation value of $604 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 4166 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(57), $(66) and $(78). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 96.49% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 4167 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SHANNON MANOR APARTMENTS ------------- Total Revenues.............................................. $1,689,384 Operating Expenses.......................................... (847,290) Replacement Reserves -- Net................................. (93,296) Debt Service................................................ (245,822) Capital Expenditures........................................ (215,973) ---------- Net Cash Flow..................................... $ 287,003 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance S-40 4168 with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 8.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $134,928. Stanger observed that your partnership liquidation S-41 4169 value of $6,818,649 was allocated 96.49% to the limited partners and divided by the total units outstanding of 9,649 to achieve the liquidation value per unit of $682. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $712,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $20,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 9.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 14.5%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 10.9%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 9,649 to achieve management's estimate of going concern value of $607 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units of the partnership were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $682 per unit is equal to management's estimate of liquidation value, and reflects a 12% premium to management's estimate of going concern value of $607. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) preferred stock of AIMCO with a value equal to $25. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 15, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 15, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net S-42 4170 operating income for the property, a direct capitalization rate of 10%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 14.5% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 14.5% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus 200 basis points reflecting the additional risk associated with mortgage debt equal to less than 30% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998, adjusted for a $500,000 cash distribution, which we advised Stanger would be made after September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $625, $616, and $604 representing discounts to the offer price of 8.3%, 9.6% and 11.4%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or S-43 4171 misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 4172 YOUR PARTNERSHIP GENERAL Shannon Manor Apartments, a Limited Partnership, is a South Carolina limited partnership which closed a private offering in 1972. Insignia acquired the general partner of your partnership in November, 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 17 limited partners of your partnership and a total of 9,649 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101 YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 22, 1972 for the purpose of owning an apartment property located in Durham, North Carolina, known as "Shannon Manor." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1970 and consists of 230 apartment units. There are 24 one-bedroom apartments, 138 two-bedroom apartments and 68 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 96.01% in 1998, 98.26% in 1997 and 98.26% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $134,928 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $551 $532 $501 $467 $456
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $99,744 of $6,083,062 of assessed valuation with a current yearly tax rate of 1.64%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 1.67% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on October 1, 2017 unless earlier dissolved. Your S-45 4173 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $581, respectively, at December 31, 1998, compared to 98% and $551, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because the property is located in a strong market with a steady upward trend. In addition, the general partner noted that it expects to spend approximately $134,928 for capital improvements at the property in 1999 to improve the property's amenities by adding washer/dryer, fireplace and patio/balcony. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,232,588, payable to USGI, Inc, which bears interest at a rate of 7.0%. The mortgage debt is due in August 2014. Your S-46 4174 partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $9,649 of limited partnership units in 1972. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until October 1, 2017, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership are not liable to the limited partners for any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership, except for act or omission which constitute fraud or gross negligence. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for indemnification of the general partners and their affiliates. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 4175 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $11.34 $2,297 $0 $ 27,346 1994................................... 8.92 1,807 0 21,517 1995................................... 17.45 3,536 0 42,095 1996................................... .43 87 0 1,038 1997................................... 3.77 763 0 9,083 1998................................... 0 0 0 0 ------ ------ -- -------- Total........................ $41.91 $8,490 $0 $101,079 ====== ====== == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions (i.e., excluding transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.1% interest in your partnership, including the interest held by us as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 4176 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $13,250 1995........................................................ 13,553 1996........................................................ 18,540 1997........................................................ 22,628 1998........................................................ 8,500
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- Not 1994........................................................ available 1995........................................................ $103,821 1996........................................................ 108,745 1997........................................................ 112,600 1998........................................................ 120,745
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 4177 SELECTED FINANCIAL INFORMATION OF SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Shannon Manor Apartments, a Limited Partnership taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA Cash and Cash Equivalents.... $ 675 $ 169 $ 77 $ 71 $ 166 $ 238 $ 212 Land & Building.............. 5,481 5,372 5,449 5,128 4,431 4,261 4,109 Accumulated Depreciation..... (3,605) (3,424) (3,469) (3,288) (3,156) (3,050) (2,947) Other Assets................. 419 511 552 466 547 354 240 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,970 $ 2,628 $ 2,609 $ 2,377 $ 1,988 $ 1,803 $ 1,614 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,246 $ 2,334 $ 2,316 $ 2,386 $ 2,452 $ 2,514 $ 2,571 Other Liabilities............ 60 105 36 114 47 36 43 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,306 2,439 2,352 2,500 2,499 2,550 2,614 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ 664 $ 189 $ 257 $ (123) $ (511) $ (747) $ (1,000) =========== =========== =========== =========== =========== =========== ===========
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental Revenue............... $ 1,195 $ 1,123 $ 1,520 $ 1,469 $ 1,382 $ 1,288 $ 1,259 Other Income................. 58 63 79 54 71 80 63 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue....... 1,253 1,186 1,599 1,523 1,453 1,368 1,322 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses........... 289 339 426 428 422 372 495 General & Administrative..... 192 188 312 280 267 271 219 Depreciation................. 136 136 181 137 105 103 103 Interest Expense............. 126 132 164 168 173 177 194 Property Taxes............... 78 78 99 99 82 105 101 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses...... 821 873 1,182 1,112 1,049 1,028 1,112 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) before extraordinary items........ 432 313 417 411 404 340 210 Extraordinary Items.......... -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss)............ 432 313 417 411 404 340 210 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income per limited partnership unit........... 43.22 31.30 41.65 0.04 40.34 34.01 20.97 =========== =========== =========== =========== =========== =========== =========== Distribution per limited partnership unit........... 0.00 3.63 0.00 0.00 0.02 0.01 0.01 =========== =========== =========== =========== =========== =========== ===========
S-50 4178 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 Net Income Your partnership recognized net income of $432,000 for the nine months ended September 30, 1998, compared to $313,000 for the nine months ended September 30, 1997. The increase in net income of $119,000, or 37.85% was primarily the result of an increase in rental revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,253,000 for the nine months ended September 30, 1998, compared to $1,186,000 for the nine months ended September 30, 1997 an increase of $67,000, or 5.65%. This increase is due to a rate increase of approximately 6% that management implemented during 1998 and offset slightly by a 2% decrease occupancy to 96% at September 1998. Management cannot predict whether the current occupancy rates will continue. Expenses The partnership's property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $289,000 for the nine months ended September 30, 1998, compared to $339,000 for the nine months ended September 30, 1997, a decrease of $50,208 or 14.80%. This decrease is due to several factors. During the prior year, the property incurred major landscaping costs, with no similar projects undertaken during the current year. Trash collections, sewer costs and other maintenance costs were lower during the current year. The decrease in maintenance expenses in the current year was the result of improvements made in the prior year. In addition, marketing and advertising costs decreased as management did not have to advertise as heavily since occupancy had improved but management cannot predict whether such occupancy rates will remain at their current level. The partnership's property management expenses totaled $89,000 for the nine months ended September 30, 1998, compared to $85,000 for the nine months ended September 30, 1997, an increase of $4,000, or 4.70%. This increase is due to the increase in revenues, as this expense is a function of rental revenues. Interest Expense Interest expense on the mortgage indebtedness totaled $126,000 for the nine months ended September 30, 1998, compared to $132,000 for the nine months ended September 30, 1997, a decrease of $6,000, or 4.54%. This decrease is the result of a lower average mortgage balance due to principal payments made during the period. S-51 4179 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $416,000 for the year ended December 31, 1997, compared to $411,000 for the year ended December 31, 1996. The increase in net income of $5,000, or 1.22% was due to an increase in rental revenues, offset by increases in depreciation and general and administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,599,000 for the year ended December 31, 1997, compared to $1,523,000 for the year ended December 31, 1996, an increase of $76,000, or 4.99%. This increase is due to a rate increase of approximately 4% that your partnership's management implemented during 1997. Expenses Depreciation expense increased $44,000 (32.11%) over the prior year, resulting from the major capital program the property underwent during the previous two years, in which the property capitalized additions of $321,000 (1997) and $698,000 (1996). General and administrative expenses increased $32,000 (23.35%) over the prior year. This increase is due primarily to an increase in manager rent-free unit expense, as management compensated its on-site manager by providing an apartment unit. There was also an increase in bad debt expense due to a higher amount of past due rent revenue deemed uncollectible. The decrease in interest expense is due to a lower average mortgage balance resulting from principal payments made during the year. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $411,000 for the year ended December 31, 1996, compared to $403,000 for the year December 31, 1995. The increase in net income of $8,000, or 1.99%, was due to an increase in rental revenues, offset by increases in depreciation and general and administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,523,000 for the year ended December 31, 1996, compared to $1,452,000 for the year ended December 31, 1995, an increase of $71,000, or 4.89%. This increase is due to a rate increase of approximately 6% that management implemented during 1996, partially offset by a 1.5% decrease in occupancy. Expenses Depreciation expense increased $13,000 (12.38%) over the prior year, resulting from the major capital program the property was undergoing in the current year, in which the property capitalized additions of $698,000. General and administrative expenses increased $13,000 (4.86%) over the prior year. This increase is due primarily to an increase in advertising, as management increased spending in this area in efforts to increase occupancy. The decrease in interest expense is due to a lower average mortgage balance resulting from principal payments made during the year. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your partnership had $675,000 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. The mortgage indebtedness of $2,246,000 requires monthly payments of approximately $20,000 until maturity in S-52 4180 August 2014. The note, which is collateralized by pledge of land and buildings, has a stated interest rate of 7% and is insured by the U.S. Department of Housing and Urban Development. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of your partnership. Such assets are currently thought to be sufficient for any near-term needs of your partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 4181 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 9,649 units of your partnership (up to 2,412.25 units) for consideration per unit of (i) 27.5 Preferred OP Units, (ii) 17.75 Common OP Units, or (iii) $682 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-54 4182 , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 4183 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 4184 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 4185 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 4186 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 4187 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 4188 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 4189 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 4190 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 4191 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 4192 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 4193 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 4194 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 4195 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 4196 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 4197 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 4198 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under South Carolina law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash Receipts (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is October 1, 2017. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating construct, own, improve, maintain, operate, Partnership is to conduct any business that lease and dispose of your partnership's may be lawfully conducted by a limited property for capital appreciation and the partnership organized pursuant to the production of income. Subject to Delaware Revised Uniform Limited Part- restrictions contained in your partnership's nership Act (as amended from time to time, agreement of limited partnership, your or any successor to such statute) (the partnership may do all things necessary for "Delaware Limited Partnership Act"), or incidental to the protection and benefit provided that such business is to be of your partnership, including, borrowing conducted in a manner that permits AIMCO to funds and creating liens. be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 4199 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership, The general partner is authorized to issue with the consent of the limited partners, is additional partnership interests in the authorized to admit additional limited AIMCO Operating Partnership for any partners and allow additional capital partnership purpose from time to time to the contributions by current limited partners. limited partners and to other persons, and The capital contribution need not be equal to admit such other persons as additional for all limited partners. limited partners, on terms and conditions and for such capital contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The fact that a partner is employed by, or The AIMCO Operating Partnership may lend or is directly or indirectly interested in or contribute funds or other assets to its connected with any person, firm or subsidiaries or other persons in which it corporation employed by your part- has an equity investment,
S-72 4200 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP nership to render or perform a service, or and such persons may borrow funds from the from whom or which your partnership may buy AIMCO Operating Partnership, on terms and merchandise or other property, will not conditions established in the sole and prohibit the general partners from executing absolute discretion of the general partner. a lease with or employing such person, firm To the extent consistent with the business or corporation or from otherwise dealing purpose of the AIMCO Operating Partnership with him or it. and the permitted activities of the general partner, the AIMCO Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership may The AIMCO Operating Partnership Agreement borrow money for partnership purposes, contains no restrictions on borrowings, and mortgage, pledge or encumber any or all of the general partner has full power and the property of your partnership as authority to borrow money on behalf of the securities for such borrowings or as AIMCO Operating Partnership. The AIMCO security for any purchase money mortgage Operating Partnership has credit agreements involved in the purchase of your that restrict, among other things, its partnership's property. ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership provides that the books of written demand with a statement of the account, together with a copy of your purpose of such demand and at such OP partnership's agreement of limited part- Unitholder's own expense, to obtain a nership and any amendments thereto, will at current list of the name and last known all times be maintained at the principal business, residence or mailing address of office of your partnership and will be open the general partner and each other OP to the reasonable inspection and examination Unitholder. of the partners or their duly authorized representatives.
Management Control The general management, control and conduct All management powers over the business and of the business of your partnership is affairs of the AIMCO Operating Partnership vested exclusively in the general partner. are vested in AIMCO-GP, Inc., which is the All decisions are made by agreement of the general partner. No OP Unitholder has any general partner. No limited partner may take right to participate in or exercise control part in or interfere in any manner with the or management power over the business and conduct or control of the business of your affairs of the AIMCO Operating Partner- partner-
S-73 4201 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship and no limited partner has the right or ship. The OP Unitholders have the right to authority to act for or bind your vote on certain matters described under partnership. "Comparison of Your Units and AIMCO OP Units -- Voting Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to the Agreement, the general partner is not liable limited partners for any act or omission to the AIMCO Operating Partnership for performed or omitted in good faith, pursuant losses sustained, liabilities incurred or to the authority granted to them to promote benefits not derived as a result of errors the interests of your partnership, except in judgment or mistakes of fact or law of for any act or omission which constitutes any act or omission if the general partner fraud or gross negligence. However, your acted in good faith. The AIMCO Operating partnership's agreement of limited part- Partnership Agreement provides for nership does not provide for indemnification indemnification of AIMCO, or any director or of the general partner and its affiliates. officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other
S-74 4202 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Your partnership's agreement of limited Except in limited circumstances, the general partnership does not provide for the removal partner has exclusive management power over of a general partner by the limited the business and affairs of the AIMCO partners. A general partner may not withdraw Operating Partnership. The general partner from your partnership without the written may not be removed as general partner of the consent of limited partners owning 75% of AIMCO Operating Partnership by the OP the units. The unanimous written consent of Unitholders with or without cause. Under the all partners is necessary to admit a new AIMCO Operating Partnership Agreement, the general partner. A limited partner may general partner may, in its sole discretion, transfer its interest in accordance with prevent a transferee of an OP Unit from applicable law but such transferee does not becoming a substituted limited partner become a substituted limited partner without pursuant to the AIMCO Operating Partnership the consent of the general partner and the Agreement. The general partner may exercise limited partners. this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership does not provide for amendments. set forth in the AIMCO Operating Partnership However, your partnership's agreement of Agreement, whereby the general partner may, limited partnership has been amended without the consent of the OP Unitholders, subsequent to its original filing. amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in
S-75 4203 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under South Carolina law, the limited Except for fraud, willful misconduct or partners are not liable directly or gross negligence, no OP Unitholder has indirectly for debts, obligations and personal liability for the AIMCO Operating liabilities of your partnership. However, if Partnership's debts and obligations, and a limited partner takes actions on behalf of liability of the OP Unitholders for the your partnership, such limited partner will AIMCO Operating Partnership's debts and be responsible for any liability which may obligations is generally limited to the result from such actions. amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partner-
S-76 4204 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership may Unless otherwise provided for in the engage in or possess an interest in other relevant partnership agreement, Delaware law business ventures of every nature and generally requires a general partner of a description, including but not limited to Delaware limited partnership to adhere to the ownership, financing, leasing, fiduciary duty standards under which it owes operation, management, syndication, its limited partners the highest duties of brokerage and development of real property; good faith, fairness and loyalty and which and neither your partnership nor the generally prohibit such general partner from partners will have any rights in or to such taking any action or engaging in any independent ventures or to the income or transaction as to which it has a conflict of profits derived therefrom. See "Your interest. The AIMCO Operating Partnership Partnership -- Fiduciary Responsibility of Agreement expressly authorizes the general the General Partner of Your Partnership." partner to enter into, on behalf of the AIMCO Operating Partnership, a right of In general, your partnership's agreement of first opportunity arrangement and other limited partnership and the AIMCO Operating conflict avoidance agreements with various Partnership Agreement have limitations on affiliates of the AIMCO Operating the liability of the general partner but Partnership and the general partner, on such such limitations differ in terms and provide terms as the general partner, in its sole more protection for the general partner of and absolute discretion, believes are the AIMCO Operating Partnership. advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset
S-77 4205 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital
S-78 4206 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting holders of 75% of the units Agreement, the holders of rights only with respect to is needed to approve the the Preferred OP Units will certain limited matters such withdrawal of a general have the same voting rights as certain amendments and partner and to send a notice as holders of the Common OP termination of the AIMCO to the general partner Units. See "Description of Operating Partnership stating that they have OP Units" in the accompany- Agreement and certain determined that your ing Prospectus. So long as transactions such as the partnership is dissolving any Preferred OP Units are institution of bankruptcy due to an action by the outstanding, in addition to proceedings, an assignment general partners making it any other vote or consent of for the benefit of creditors impossible for your partners required by law or and certain transfers by the partnership to carry on its by the AIMCO Operating general partner of its business in a normal Partnership Agreement, the interest in the AIMCO fashion. Within thirty days affirmative vote or consent Operating Partnership or the of such notice, if all of of holders of at least 50% admission of a successor the limited partners agree of the outstanding Preferred general partner. to continue the business of OP Units will be necessary your partnership, a new for effecting any amendment Under the AIMCO Operating general partner may be of any of the provisions of Partnership Agreement, the elected to carry on the the Partnership Unit general partner has the business of your Designation of the Preferred power to effect the partnership. Upon the vote OP Units that materially and acquisition, sale, transfer, of the general partner and adversely affects the rights exchange or other the limited partners owning or preferences of the disposition of any assets of at least 67% of the units, holders of the Preferred OP the AIMCO Operating your partnership may Units. The creation or Partnership (including, but dissolve and may sell all or issuance of any class or not limited to, the exercise substantially all of its series of partnership units, or grant of any conversion, interest in all partnership including, without option, privilege or assets. The consent of the limitation, any partner- subscription right or any general partner and all ship units that may have other right available in limited partners is rights senior or superior to connection with any assets necessary to admit a general the Preferred OP Units, at any time held by the partner or a limited shall not be deemed to AIMCO Operating Partnership) partner. materially adversely affect or the merger, the rights or preferences of consolidation, In general, you have greater the holders of Preferred OP reorganization or other voting rights in your Units. With respect to the combination of the AIMCO partnership than you will exercise of the above Operating Partnership with have as an OP Unitholder. OP described voting rights, or into another entity, all Unitholders cannot remove each Preferred OP Units without the consent of the the general partner of the shall have one (1) vote per OP Unitholders. AIMCO Operating Partnership. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless,
S-79 4207 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash at the rate of $0.50 per or such portion as the Receipts are disbursed at Preferred OP Unit; provided, general partner may in its reasonable intervals as however, that at any time sole and absolute discretion determined by the general and from time to time on or determine, of Available Cash partners in their absolute after the fifth anniversary (as defined in the AIMCO discretion. of the issue date of the Operating Partnership Preferred OP Units, the Agreement) generated by the AIMCO Operating Partnership AIMCO Operating Partnership may adjust the annual during such quarter to the distribution rate on the general partner, the special Preferred OP Units to the limited partner and the lower of (i) 2.00% plus the holders of Common OP Units annual interest rate then on the record date es- applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the Such distributions will be
S-80 4208 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cumulative from the date of future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may not There is no public market There is no public market mortgage its interest but for the Preferred OP Units for the OP Units. The AIMCO may otherwise assign, sell and the Preferred OP Units Operating Partnership or dispose of its are not listed Agreement re-
S-81 4209 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest in accordance with on any securities exchange. stricts the transferability applicable law. A transferee The Preferred OP Units are of the OP Units. Until the may become a substituted subject to restrictions on expiration of one year from limited partner upon the transfer as set forth in the the date on which an OP approval of the general AIMCO Operating Partnership Unitholder acquired OP partner and the consent of Agreement. Units, subject to certain the limited partners. exceptions, such OP There are no redemption Pursuant to the AIMCO Unitholder may not transfer rights associated with your Operating Partnership all or any portion of its OP units. Agreement, until the Units to any transferee expiration of one year from without the consent of the the date on which a holder general partner, which of Preferred OP Units consent may be withheld in acquired Preferred OP Units, its sole and absolute subject to certain discretion. After the exceptions, such holder of expiration of one year, such Preferred OP Units may not OP Unitholder has the right transfer all or any portion to transfer all or any of its Preferred OP Units to portion of its OP Units to any transferee without the any person, subject to the consent of the general satisfaction of certain con- partner, which consent may ditions specified in the be withheld in its sole and AIMCO Operating Partnership absolute discretion. After Agreement, including the the expiration of one year, general partner's right of such holders of Preferred OP first refusal. See Units has the right to "Description of OP Units -- transfer all or any portion Transfers and Withdrawals" of its Preferred OP Units to in the accompanying any person, subject to the Prospectus. satisfaction of certain conditions specified in the After the first anniversary AIMCO Operating Partner- of becoming a holder of ship Agreement, including Common OP Units, an OP the general partner's right Unitholder has the right, of first refusal. subject to the terms and conditions of the AIMCO After a one-year holding Operating Partnership period, a holder may redeem Agreement, to require the Preferred OP Units and AIMCO Operating Partnership receive in exchange to redeem all or a portion therefor, at the AIMCO Oper- of the Common OP Units held ating Partnership's option, by such party in exchange (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to acquire some or all of the ten-
S-82 4210 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 4211 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 4212 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 4213 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 4214 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 4215 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 4216 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 4217 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 4218 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for
S-91 4219 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class The trustee may sell the Class I Preferred A Common Stock of AIMCO that is equal in Stock held in the trust to AIMCO or a value to the Liquidation Preference of the person, designated by the trustee, whose Preferred OP Units tendered for redemption, ownership of the Class I Preferred Stock or (iii) for Preferred OP Units redeemed will not violate the Class I Preferred after a two-year holding period, a number of Ownership Limit. Upon such sale, the shares of Class I Preferred Stock of AIMCO interest of the charitable beneficiaries in that pay an aggregate amount of dividends the shares sold will terminate and the equivalent to the distributions on the trustee will distribute to the prohibited Preferred OP Units tendered for redemption; transferee, the lesser of (i) the price paid provided that such shares are part of a by the prohibited transferee for the shares class or series of preferred stock that is or if the prohibited transferee did not give then listed on the NYSE or another national value for the shares in connection with the securities exchange. The Preferred OP Units event causing the shares to be held in the may not be redeemed at the option of the trust, the market price of such shares on AIMCO Operating Partnership. See the day of the event causing the shares to "Description of Preferred OP be held in the trust and (ii) the price per Units -- Redemption." share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 4220 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $18,540 in 1996, $22,628 in 1997 and $8,500 in 1998. The property manager received management fees of $108,745 in 1996, $112,600 in 1997 and $120,745 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 4221 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,645,155 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or a Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 4222 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Shannon Manor Apartments, a Limited Partnership at December 31, 1997 and 1996, and for the years then ended, as set forth in their report. We've included the financial statements of Shannon Manor Apartments, a Limited Partnership in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-95 4223 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note A -- Basis of Presentation (Unaudited)................. F-4 Independent Auditors' Report................................ F-5 Balance Sheet as of December 31, 1997....................... F-6 Statement of Profit and Loss for the year ended December 31, 1997...................................................... F-7 Statement of Changes in Deficit/Equity for the year ended December 31, 1997......................................... F-10 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-11 Notes to Financial Statements............................... F-12 Independent Auditors' Report................................ F-15 Balance Sheet as of December 31, 1996....................... F-16 Statement of Profit and Loss for the year ended December 31, 1996...................................................... F-17 Statement of Changes in Deficit/Equity for the year ended December 31, 1996......................................... F-20 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-21 Notes to Financial Statements............................... F-22
F-1 4224 SHANNON MANOR APARTMENTS CONDENSED BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 675,402 Receivables and Deposits.................................... 81,858 Restricted Escrows.......................................... 89,972 Other Assets................................................ 247,323 Investment Property: Land...................................................... 211,500 Building and related personal property.................... 5,269,497 ----------- 5,480,997 Less: Accumulated depreciation............................ $(3,605,149) 1,875,848 ----------- ---------- Total Assets:..................................... $2,970,403 ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 5,153 Other Accrued Liabilities................................... 3,347 Property Taxes Payable...................................... 36,321 Tenant Security Deposits.................................... 14,732 Notes Payable............................................... 2,245,668 Partners' Capital........................................... 665,182 ---------- Total Liabilities and Partners' Capital........... $2,970,403 ==========
See accompanying note. F-2 4225 SHANNON MANOR APARTMENTS CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,194,684 $1,122,822 Other Income.............................................. 58,416 63,247 ---------- ---------- Total Revenues.................................... 1,253,100 1,186,069 Expenses: Operating Expenses........................................ 289,071 339,279 General and Administrative Expenses....................... 192,061 187,633 Depreciation Expense...................................... 135,878 135,878 Interest Expense.......................................... 126,129 131,882 Property Tax Expense...................................... 77,763 77,880 ---------- ---------- Total Expenses.................................... 820,902 872,552 ---------- ---------- Net Income........................................ $ 432,198 $ 313,517 ========== ==========
See accompanying note. F-3 4226 SHANNON MANOR APARTMENTS CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 --------------------- 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $ 432,198 $ 313,517 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 135,878 135,878 Changes in accounts: Receivables and deposits and other assets............ (178,583) (82,853) Accounts Payable and accrued expenses................ 9,081 (9,167) --------- --------- Net cash provided by (used in) operating activities...................................... 398,574 357,375 --------- --------- Investing Activities Property improvements and replacements.................... (31,607) (244,019) Net (increase)/decrease in restricted escrows............. 311,522 37,279 --------- --------- Net cash provided by (used in) investing activities...................................... 279,915 (206,740) --------- --------- Financing Activities Distributions to partners................................. (24,396) -- Payments on mortgage...................................... (56,033) (52,426) --------- --------- Net cash provided by (used in) financing activities...................................... (80,429) (52,426) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 598,060 98,209 Cash and cash equivalents at beginning of year.............. 77,342 71,271 --------- --------- Cash and cash equivalents at end of period.................. $ 675,402 $ 169,480 ========= =========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Shannon Manor Apartments as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 4227 REPORT OF INDEPENDENT AUDITORS The General Partners Shannon Manor Apartments, A Limited Partnership We have audited the accompanying balance sheet of Shannon Manor Apartments, A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1997 and the related statements of profit and loss, changes in deficit/equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shannon Manor Apartments, A Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1998 Greenville, South Carolina F-5 4228 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM BALANCE SHEET DECEMBER 31, 1997 ASSETS Current assets Petty cash................................................ $ 300 Unrestricted cash......................................... 55,585 Tenant accounts receivable, net of allowance for doubtful accounts of $10,087.................................... 10,536 ---------- Total current assets.............................. 66,421 Deposits held in trust -- funded Tenant security deposits.................................. 21,457 Prepaid expenses Property insurance........................................ 13,246 Mortgage insurance........................................ 8,057 ---------- Total prepaid expenses............................ 21,303 Restricted deposits and funded reserves Mortgage escrow deposits.................................. 75,475 Reserve for replacements.................................. 79,997 Paint reserve............................................. 246,022 ---------- Total deposits.................................... 401,494 Fixed assets, at cost (Notes 1 and 2) Land...................................................... $ 211,500 Building.................................................. 5,237,890 ----------- 5,449,390 Less accumulated depreciation............................... (3,469,271) 1,980,119 ----------- Other assets Partnership cash.......................................... 118,761 ---------- $2,609,555 ========== LIABILITIES AND PARTNERS' EQUITY Current liabilities Accounts payable.......................................... $ 13,943 Accrued interest -- mortgage.............................. 13,838 Mortgage payable, current portion (Note 2)................ 75,615 ---------- Total current liabilities......................... 103,396 Deposit and prepayment liabilities Tenant security deposits.................................. 21,457 Rent received in advance.................................. 1,234 ---------- Total deposit and prepayment liabilities.......... 22,691 Long-Term Liabilities Mortgage payable (Note 2)................................. 2,301,701 Less current portion................................... (75,615) ---------- Total long-term liabilities....................... 2,226,086 ---------- Total liabilities................................. 2,352,173 Partners' equity.......................................... 257,382 ---------- $2,609,555 ==========
See accompanying notes. F-6 4229 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- ---------- Rental Income Apartments or Member Carrying Charges (Coops)............. $1,734,180 Miscellaneous (specify) Rent increases not implemented.... (72,130) ---------- Total Rent Revenue Potential at 100% Occupancy.... 1,662,050 Vacancies Apartments................................................ (142,075) Miscellaneous (specify)................................... ---------- Total Vacancies................................... (142,075) ---------- Net Rental Revenue Rent Revenue Less Vacancies.... 1,519,975 Elderly and Congregate Services Income ---------- Total Service Income (Schedule Attached).......... -- Financial Revenue Income from Investments -- Miscellaneous*................. 11,755 ---------- Total Financial Revenue........................... 11,755 Other Revenue Laundry and Vending....................................... 27,178 NSF and Late Charges...................................... 14,271 Damages and Cleaning Fees................................. 11,084 Forfeited Tenant Security Deposits........................ 712 Other Revenues (specify).................................. 13,834 ---------- Total Other Revenue............................... 67,079 ---------- Total Revenue..................................... $1,598,809 ========== Administrative Expenses Advertising............................................... $ 22,174 Other Administrative Expense.............................. 14,683 Office Salaries........................................... 18,287 Office Supplies........................................... 13,221 Office or Model Apartment Rent............................ 7,210 Management Fee............................................ 112,600 Manager or Superintendent Salaries........................ 24,201 Manager or Superintendent Rent Free Unit.................. 24,340 Legal Expenses (Project).................................. 12 Auditing Expenses (Project)............................... 6,050 Bookkeeping Fees/Accounting Services...................... 14,628 Telephone and Answering Service........................... 4,663 Bad Debts................................................. 30,555 Miscellaneous Administrative Expenses (specify)**......... 11,791 ---------- Total Administrative Expenses..................... 304,415 ----------
F-7 4230 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- ---------- Utilities Expense Fuel Oil/Coal............................................. Electricity (Light and Misc. Power)....................... $ 21,924 Water..................................................... 32,800 Gas....................................................... 1,588 Sewer..................................................... 51,717 ---------- Total Utilities Expense........................... 108,029
F-8 4231 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT AMOUNT ---------------------- ---------- Operating and Maintenance Expenses Janitor and Cleaning Payroll.............................. Janitor and Cleaning Supplies............................. $ 10 Janitor and Cleaning Contract............................. 8,215 Exterminating Payroll/Contract............................ 2,583 Garbage and Trash Removal................................. 17,656 Grounds Supplies.......................................... 3,900 Grounds Contract.......................................... 36,713 Repairs Payroll........................................... 68,962 Repairs Material.......................................... 25,116 Repairs Contract.......................................... 33,822 Heating/Cooling Repairs and Maintenance................... 7,295 Swimming Pool Maintenance/Contract........................ 1,999 Snow Removal.............................................. 172 Decorating Payroll/Contract............................... 30,619 Decorating Supplies....................................... 4,727 Miscellaneous Operating & Maintenance Exp.***............. 1,760 ---------- Total Operating & Maintenance Expenses............ 243,549 Taxes and Insurance Real Estate Taxes......................................... 98,864 Payroll Taxes (FICA)...................................... 10,060 Miscellaneous Taxes, Licenses and Permits................. 1,294 Property and Liability Insurance (Hazard)................. 36,948 Workmen's Compensation.................................... 7,672 Health Insurance & Other Employee Benefits................ 7,137 Other Insurance (specify)................................. ---------- Total Taxes and Insurance......................... 161,975 Financial Expenses Interest on Mortgage Payable.............................. 163,821 Mortgage Insurance Premium/Service Charge................. 11,355 Miscellaneous Financial Expenses ---------- Total Financial Expenses.......................... 175,176 Elderly & Congregate Service Expenses Total Cost of Operations Before Depreciation...... 993,144 ---------- Profit (Loss) Before Depreciation................. 605,665 Depreciation (Total) -- 6600 (specify).................... (181,171) ---------- Operating Profit or (Loss)........................ 424,494 Corporate or Mortgagor Entity Expenses Other Expenses (Entity) General partners fees and expenses............................................... 8,000 ---------- Total Corporate Expenses.......................... 8,000 ---------- Net Profit or (Loss).............................. $ 416,494 ==========
See accompanying notes. F-9 4232 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CHANGES IN DEFICIT/EQUITY YEAR ENDED DECEMBER 31, 1997 (Deficit) at December 31, 1996.............................. $(122,780) Net income.................................................. 416,494 Distributions............................................... (36,332) --------- Equity at December 31, 1997................................. $ 257,382 =========
See accompanying notes. F-10 4233 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Source of Funds Operations: Revenue: Rental income........................................... $1,451,247 Other: Legal and late fees................................... $ 14,271 Laundry income........................................ 27,178 Cleaning and damage................................... 11,084 Deposits forfeited.................................... 14,546 Interest income....................................... 11,755 78,834 -------- ---------- 1,530,081 Expenses: Administrative expenses................................. 72,594 Management fee.......................................... 112,600 Bookkeeper fee.......................................... 18,768 Operating expenses...................................... 109,526 Payrolls................................................ 111,450 Maintenance fees........................................ 174,587 Taxes -- payroll........................................ 10,060 Taxes -- real estate.................................... 98,864 Taxes -- miscellaneous.................................. 1,294 Property insurance...................................... 37,944 Workmen's compensation.................................. 7,672 Health insurance........................................ 7,137 Interest on mortgage note............................... 163,821 Mortgage insurance premium.............................. 11,553 Entity expenses......................................... 8,000 945,870 -------- ---------- Net cash provided by operating activities................... 584,211 Investing activities Change in partnership cash.................................. (4,474) Change in restricted deposits and funded reserves........... (73,702) Purchase of fixed assets, including $69,679 of additions capitalized and in accounts payable in the prior year..... (390,712) ---------- Net cash (used) for investing activities.................... (468,888) Financing activities Distributions............................................... $ (36,332) Reduction of long-term debt................................. (70,520) ---------- Net cash (used) for financing activities.................... (106,852) ---------- Increase in unrestricted cash............................... 8,471 Unrestricted cash at December 31, 1996...................... 47,114 ---------- Unrestricted cash at December 31, 1997...................... $ 55,585 ========== Operating activities Net income.................................................. $ 416,494 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 181,171 Changes in operating assets and liabilities: Prepaid expenses........................................ (1,194) Deposits held in trust.................................. 2,400 Tenant accounts receivable.............................. (7,049) Accounts payable........................................ (1,497) Bookkeeper fee payable.................................. (4,140) Rent received in advance................................ 426 Tenant security deposits................................ (2,400) ---------- Net cash provided by operating activities................... $ 584,211 ==========
See accompanying notes. F-11 4234 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Durham, North Carolina and to operate thereon an apartment complex of 230 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by the straight-line and accelerated methods over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7.5 percent of gross collections to Insignia Residential Group. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $19,528 until August 2014, including interest at 7%, to USGI, Inc. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1998...................................................... $75,615 1999...................................................... 81,080 2000...................................................... 86,946 2001...................................................... 93,232 2002...................................................... 99,971
During the year, the Partnership incurred net interest costs on the mortgage note of $163,821 and paid net interest costs of $163,821. F-12 4235 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- -------- Insignia Residential Group Management fee $112,600 Insignia Residential Group Bookkeeper fee 14,628 AmReal Corporation General partner reimbursements 8,000
4. FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ -------- ----------- ------------- Shannon Manor Apartments................. $2,301,701 $211,500 $3,175,539 $2,062,351 ========== ======== ========== ==========
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- -------- ----------- ---------- ------------ -------- ------------- Shannon Manor........... $211,500 $5,237,890 $5,449,390 $3,469,271 7/74 3-40 ======== ========== ========== ==========
Reconciliation of "Fixed Assets and Accumulated Depreciation": FIXED ASSETS Balance at beginning of year................................ $5,128,357 Property improvements....................................... 321,033 ---------- Balance at end of year...................................... $5,449,390 ========== ACCUMULATED DEPRECIATION Balance at beginning of year................................ $3,288,100 Additions charged to expense................................ 181,171 ---------- Balance at end of year...................................... $3,469,271 ==========
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $5,724,465. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,927,037. F-13 4236 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss: Net income as reported...................................... $416,494 Add (deduct): Depreciation differences.................................. (40,682) Other..................................................... (1,332) -------- Federal taxable (loss) income............................... $374,480 ======== Federal taxable (loss) income per limited partnership unit...................................................... $ 37.07 ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities: Net assets as reported...................................... $ 257,382 Land and Buildings.......................................... 275,076 Accumulated depreciation.................................... (457,766) Other....................................................... (14,915) --------- Net assets -- tax basis..................................... $ 59,777 =========
6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 4237 REPORT OF INDEPENDENT AUDITORS The General Partners Shannon Manor Apartments, A Limited Partnership We have audited the accompanying balance sheet of Shannon Manor Apartments, A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1996 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shannon Manor Apartments, A Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1997 Greenville, South Carolina F-15 4238 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets Petty cash................................................ $ 300 Unrestricted cash......................................... 47,114 Tenant accounts receivable................................ 3,487 ----------- Total current assets.............................. 50,901 Deposits held in trust -- funded Tenant security deposits.................................. 23,857 Prepaid expenses Property insurance........................................ 12,250 Mortgage insurance........................................ 7,859 ----------- Total prepaid expenses............................ 20,109 Restricted deposits and funded reserves Mortgage escrow deposits.................................. 72,495 Reserve for replacements.................................. 66,697 Paint reserve............................................. 188,600 ----------- Total deposits.................................... 327,792 Fixed assets, at cost (Notes 1 and 2) Land...................................................... $ 211,500 Building.................................................. 4,916,857 ----------- 5,128,357 Less accumulated depreciation............................... (3,288,100) 1,840,257 ----------- Other assets Partnership cash.......................................... 114,287 ----------- $ 2,377,203 =========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities Accounts payable.......................................... $ 85,119 Accrued interest -- mortgage.............................. 13,838 Bookkeeper fee payable.................................... 4,140 Mortgage payable, current portion (Note 2)................ 70,520 ----------- Total current liabilities......................... 173,617 Deposit and prepayment liabilities Tenant security deposits.................................. 23,857 Rent received in advance.................................. 808 ----------- Total deposit and prepayment liabilities.......... 24,665 Long-term liabilities Mortgage payable (Note 2)................................. 2,372,221 Less current portion................................... (70,520) ----------- Total long-term liabilities....................... 2,301,701 ----------- Total liabilities................................. 2,499,983 Partners' (deficit)......................................... (122,780) ----------- $ 2,377,203 ===========
See accompanying notes. F-16 4239 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- ---------- Rental Income Apartment or member carrying charges (loops).............. $1,637,340 Miscellaneous (specify) -- Rent increases not implemented............................................ (93,721) ---------- Total Rent Revenue Potential at 100% Occupancy.... 1,543,619 Vacancies Apartments................................................ (74,874) Miscellaneous (specify)................................... ---------- Total Vacancies................................... (74,874) ---------- Net Rental Revenue Rent Revenue Less Vacancies.... 1,468,745 Elderly and Congregate Services Income ---------- Total Service Income (Schedule Attached).......... -- Financial Revenue Interest Income -- Project Operations..................... 629 ---------- Income from Investments -- Reserve for Replacement........ 1,368 Income from Investments -- Miscellaneous*................. 15,553 ---------- Total Financial Revenue........................... 17,550 Other Revenue Laundry and Vending....................................... 9,012 NSF and Late Charges...................................... 10,061 Damages and Cleaning Fees................................. 7,219 Forfeited Tenant Security Deposits........................ 628 Other Revenue (specify)**................................. 9,769 ---------- Total Other Revenue............................... 36,689 ---------- Total Revenue..................................... $1,522,984 ==========
F-17 4240 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- ---------- Administrative Expenses Advertising............................................... $ 18,879 Other Administrative Expense.............................. 11,168 Office Salaries........................................... 21,751 Office Supplies........................................... 15,098 Office or Model Apartment Rent............................ 6,690 Management Fee............................................ 108,745 Manager or Superintendent Salaries........................ 26,550 Manager or Superintendent Rent Free Unit.................. 14,974 Legal Expenses (Project).................................. 190 Auditing Expenses (Project)............................... 7,150 Bookkeeping Fees/Accounting Services...................... 11,040 Telephone and Answering Service........................... 5,394 Bad Debts................................................. 20,932 Miscellaneous Administrative Expenses (specify)***........ 11,131 ---------- Total Administrative Expenses..................... 279,692 Utilities Expense Fuel Oil/Coal............................................. Electricity (Light and Misc. Power)....................... 17,251 Water..................................................... 31,161 Gas....................................................... 2,155 Sewer..................................................... 47,955 ---------- Total Utilities Expense........................... 98,522 Operating and Maintenance Expenses Janitor and Cleaning Contract............................. $ 10,219 Exterminating Payroll/Contract............................ 2,921 Exterminating Supplies Garbage and Trash Removal................................. 3,719 Grounds Supplies.......................................... 1,716 Grounds Contract.......................................... 35,395 Repairs Payroll........................................... 65,464 Repairs Material.......................................... 22,988 Repairs Contract.......................................... 53,305 Heating/Cooling Repairs and Maintenance................... 10,888 Swimming Pool Maintenance/Contract........................ 1,742 Snow Removal.............................................. 247 Decorating Payroll/Contract............................... 29,243 Decorating Supplies....................................... 6,942 Miscellaneous Operating & Maintenance Exp.****............ 1,034 ---------- Total Operating & Maintenance Expenses............ 245,823
F-18 4241 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT AMOUNT - ---------------------- ---------- Taxes and Insurance Real Estate Taxes......................................... 99,039 Payroll Taxes (FICA)...................................... 8,951 Property and Liability Insurance (Hazard)................. 35,981 Fidelity Bond Insurance................................... 314 Workmen's Compensation.................................... 8,050 Health Insurance & Other Employee Benefits................ 4,863 ---------- Total Taxes and Insurance......................... 157,198 Financial Expenses Interest on Bonds Payable................................. Interest on Mortgage Payable.............................. 168,192 Mortgage Insurance Premium/Service Charge................. 12,005 Miscellaneous Financial Expenses -- Loss on disposal of fixed assets........................................... 6,035 ---------- Total Financial Expenses.......................... 186,232 Elderly & Congregate Service Expenses ---------- Total Cost of Operations Before Depreciation...... 967,467 ---------- Profit (Loss) Before Depreciation................. 555,517 Depreciation (Total) -- 6600 (specify).................... (136,731) ---------- Operating Profit or (Loss)........................ 418,786 Corporate or Mortgagor Entity Expenses Other Expenses (Entity) -- General partners fees and expenses............................................... 7,500 ---------- Total Corporate Expenses.......................... 7,500 ---------- Net Profit or (Loss).............................. $ 411,286 ==========
See accompanying notes. F-19 4242 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1996 (Deficit) at December 31, 1995.............................. $(511,318) Net income.................................................. 411,286 Distributions............................................... (22,748) --------- (Deficit) at December 31, 1996.............................. $(122,780) =========
See accompanying notes. F-20 4243 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Source of Funds Operations: Revenue: Rental income........................................... $1,424,142 Other: Legal and late fees................................... $ 10,061 Laundry income........................................ 9,012 Cleaning and damage................................... 7,219 Deposits forfeited.................................... 10,397 Interest income....................................... 17,550 54,239 -------- ---------- 1,478,381 Expenses: Administrative expenses................................. 69,010 Management fee.......................................... 108,745 Bookkeeper fee.......................................... 6,900 Operating expenses...................................... 84,165 Payrolls................................................ 113,765 Maintenance fees........................................ 180,359 Taxes -- payroll........................................ 8,951 Taxes -- real estate.................................... 99,039 Property insurance...................................... 37,526 Fidelity bond........................................... 314 Workmen's compensation.................................. 8,050 Health insurance........................................ 4,863 Interest on mortgage note............................... 168,576 Mortgage insurance premium.............................. 11,789 Entity expenses......................................... 7,500 909,552 -------- ---------- Net cash provided by operating activities................... 568,829 Investing activities Change in partnership cash.................................. (73,140) Change in restricted deposits and funded reserves........... 137,956 Purchase of fixed assets, less $69,679 of additions in accounts payable at year-end.............................. (637,929) ---------- Net cash (used) for investing activities.................... (573,113) Financing activities Distributions............................................... $ (22,748) Reduction of long-term debt................................. (65,766) ---------- Net cash (used) for financing activities.................... (88,514) ---------- (Decrease) in unrestricted cash............................. (92,798) Unrestricted cash at December 31, 1995...................... 139,912 ---------- Unrestricted cash at December 31, 1996...................... $ 47,114 ========== Operating activities Net income.................................................. $ 411,286 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 136,731 Loss on disposal.......................................... 6,035 Changes in operating assets and liabilities: Prepaid expenses........................................ (1,329) Deposits held in trust.................................. 1,775 Tenant accounts receivable.............................. 3,338 Accounts receivable -- other............................ 14,354 Accounts payable........................................ 3 Bookkeeper fee payable.................................. 4,140 Rent received in advance................................ (5,345) Accrued interest -- mortgage............................ (384) Tenant security deposits................................ (1,775) ---------- Net cash provided by operating activities................... $ 568,829 ==========
See accompanying notes. F-21 4244 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Durham, North Carolina and to operate thereon an apartment complex of 230 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by the straight-line and accelerated methods over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7.5 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indictors of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. F-22 4245 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $19,528 until August 2014, including interest at 7%, to USGI, Inc. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1997....................................................... $70,520 1998....................................................... 75,615 1999....................................................... 81,080 2000....................................................... 86,946 2001....................................................... 93,232
During the year, the Partnership incurred net interest costs on the mortgage note of $168,192 and paid net interest costs of $168,576. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- -------- Insignia Management Group Management fee $108,745 Insignia Management Group Bookkeeper fee 11,040 AmReal Corporation General partner reimbursements 7,500
4. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS AND COST CAPITALIZED RELATED SUBSEQUENT DESCRIPTION ENCUMBRANCES LAND PERSONAL PROPERTY TO ACQUISITION ----------- ------------ -------- ----------------- ---------------- Shannon Manor.................. $2,372,221 $211,500 $3,175,589 $1,741,318 ========== ======== ========== ==========
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PERSONAL PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS ----------- -------- ----------------- ---------- ------------ -------- ----------- Shannon Manor........ $211,500 $4,916,857 $5,128,357 $3,288,100 7-74 3-40 ======== ========== ========== ==========
F-23 4246 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $4,430,794 Property improvements..................................... 707,608 Removals.................................................. (10,045) ---------- Balance at end of year............................ $5,128,357 ========== Accumulated Depreciation Balance at beginning of year.............................. $3,155,379 Additions charged to expense.............................. 136,731 Removals.................................................. (4,010) ---------- Balance at end of year............................ $3,288,100 ==========
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is $5,403,432. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is $3,705,184. 5. INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss: Net income as reported...................................... $411,286 Add (deduct): Depreciation differences.................................. (54,184) Unearned income........................................... (5,345) Other..................................................... 3,962 -------- Federal taxable (loss) income............................... $355,719 ======== Federal taxable (loss) income per limited partnership unit...................................................... $ 35.22 ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities: Net liabilities as reported................................. $(122,780) Land and Buildings.......................................... 250,076 Accumulated depreciation.................................... (413,074) Other....................................................... 7,407 --------- Net deficiency -- tax basis................................. $(278,371) =========
F-24 4247 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-25 4248 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 4249 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 4250 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 4251 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4252 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4253 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 4254 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 4255 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4256 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4257 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4258 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 4259 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 4260 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 4261 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 4262 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4263 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4264 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4265 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4266 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4267 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4268 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4269 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4270 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4271 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4272 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4273 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4274 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4275
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4276 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4277
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4278 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 4279 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 4280 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 4281
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 4282 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 4283 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 4284 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 4285
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 4286 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 4287 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 4288 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 4289 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 4290 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 4291 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 4292 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 4293 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 4294 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 4295 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 4296 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 4297 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 4298 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Shannon Manor Apartments, a Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Shannon Manor Apartments, a Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $682 in cash, or 17.75 Common OP Units of the Purchaser, or 27.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 4299 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an A-2 4300 extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 4301 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 4302
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 4303
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 4304
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 4305
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4306 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 4307 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 12, 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Sharon Woods, L.P. in exchange for your choice of: 1,971.50 of our 8.0% Class Two Partnership Preferred Units; 1,274 of our Partnership Common Units; or $49,287 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 23% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $49,287 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO'S ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 4308 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Sharon Woods, L.P................................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Review of Appraisal.......................... S-44 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF SHARON WOODS, L.P.......................................... S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59
i 4309
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-59 Proration.................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ----- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4310 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In June, 1998, an independent appraiser valued the property on an unencumbered basis to be $9,500,000. We estimate your property to be worth $7,764,000, less approximately $134,600 of deferred maintenance and investment. Therefore, it is possible, S-1 4311 that the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 4312 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of July 1, 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-3 4313 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 4314 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $4,837,000 of balloon payments due on its mortgage debt in October, 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 4315 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2003 and require balloon payments of $4,837,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partner the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 4316 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,943 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,185 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 4317 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 4318 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D"' for poor). We have rated your property's location A (excellent) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 815,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 7,764,000 Plus: Cash and cash equivalents............................. 335,401 Plus: Other partnership assets, net of security deposits.... 583,082 Less: Mortgage debt, including accrued interest............. (5,376,902) Less: Accounts payable and accrued expenses................. (156,166) Less: Other liabilities..................................... (353,866) ----------- Partnership valuation before taxes and certain costs........ 2,795,549 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (134,600) Less: Closing costs......................................... (194,100) ----------- Estimated net valuation of your partnership................. 2,466,849 Percentage of estimated net valuation allocated to holders of units.................................................. 88.91% ----------- Estimated net valuation of units............................ 2,193,270 Total number of units............................. 44.5 ----------- Estimated valuation per unit................................ $ 49,287 =========== Cash consideration per unit................................. $ 49,287 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $49,287 by the $25 liquidation preference of each Preferred OP Unit to get 1971.50 Preferred OP Units per unit. S-9 4319 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $49,287 by a price of $38.69 to get 1,274 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; - the net book value of your partnership; and - recent appraisals for the property for $9,500,000, which appraisals did not take into account the mortgages, other assets and liabilities, costs of sale of the property and approximately $134,600 of deferred maintenance of the property. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $49,287 Partnership Preferred Units................................. $49,287 Partnership Common Units.................................... $49,287 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $49,287 Estimated going concern value............................. $40,375 Net book value............................................ $24,652
S-10 4320 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Sharon Woods, L.P. is a Delaware limited partnership which was formed on June 28, 1985 for the purpose of owning and operating a single apartment property located in Sharonville, Ohio known as "Timber Ridge Apartments." Timber Ridge Apartments consists of 248 units and was built in 1972. Your partnership has no employees. As of September 30, 1998, there were 44.5 units of limited partnership interest issued and outstanding, which were held of record by 57 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,889,000 of limited partnership units in 1983. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $5,117,299, payable to FNMA, which bears interest at the rate of 7.83%. The mortgage debt is due on October 15, 2003. Your partnership also has a second mortgage note outstanding of $168,300, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 4321 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,971.50 of our Class Two Partnership Preferred Units; - 1,274 of our Partnership Common Units; or - $49,287 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 23% of the outstanding 44.5 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,971.50 Preferred OP Units, 1,274 Common OP Units, or 49,287 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 23% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 4322 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 4323 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $49,287 in cash, 1,971.50 Preferred OP Units or 1,274 Common OP Units. Both your units and the OP Units S-14 4324 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $49,287. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner receives $5,800 annually and may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $33,861 for the fiscal year ended December 31, 1998. The property manager received management fees of $85,230 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $499,031 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 4325 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 4326
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) ..... 29,343 28,422 Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 4327 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 4328
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 4329 SUMMARY FINANCIAL INFORMATION OF SHARON WOODS, L.P. The summary financial information of Sharon Woods, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Sharon Woods, L.P. for the year ended December 31, 1997 is based on audited financial statements and for the years ended December 31, 1996 is based on unaudited financial statements. The summary financial information for 1995, 1994, and 1993 is based on unaudited financial information which is not in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." SHARON WOODS LIMITED PARTNERSHIP
SHARON WOODS, L.P. ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT UNIT DATA) OPERATING DATA: Total Revenues................ $ 1,225 $ 1,253 $ 1,676 $ 1,588 $ 1,526 $ 1,529 $ 1,186 Net Income/(Loss)............. (5) 64 49 (38) (93) (144) (294) Net Income per limited partnership unit............ (98.80) 1,264.64 968.24 (755.56) (1,837.68) (2,845.44) (5,809.44) Distributions per limited partnership unit............ -- 3,398.72 3,822.22 -- -- -- -- Distributions per limited partnership unit (which represent a return of capital).................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents...... $ 356 $ 291 $ 335 $ 437 $ 185 $ 278 $ 276 Real Estate, Net of Accumulated Depreciation... 5,709 5,836 5,789 5,930 6,076 6,118 5,636 Total Assets................. 6,474 6,564 6,539 6,747 6,817 6,960 7,043 Notes Payable................ 5,241 5,302 5,296 5,353 5,404 5,452 5,494 General Partners' Capital/ (Deficit).................. 140 145 141 157 161 171 187 Limited Partners' Capital/ (Deficit).................. 870 906 874 1,002 1,036 1,119 1,247 Partners' Capital/(Deficit).......... 1,010 1,051 1,015 1,159 1,197 1,290 1,434 Total Distribution........... -- 172 193 (0) 0 (0) -- Book value per limited partnership unit........... 19,333.33 20,133.33 19,422.22 22,266.67 23,022.22 24,873.97 27,711.11 Net increase (decrease) in cash and cash equivalents................ 21 (146) (102) 252 (93) 2 276 Net cash provided by operating activities....... 201 187 290 310 141 50 (157) Ratio of earnings to fixed charges.................... 0.98/1 1.20/1 1.11/1 0.92/1 0.81/1 0.67/1 0.34/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING SHARON PARTNERSHIP WOODS, L.P. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,185 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $3,943 $0
S-20 4330 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 4331 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In June 1998, an independent appraiser valued the properties on an unencumbered basis to be $9,500,000. We estimate your property to be worth $7,764,000 although we believe the properties need approximately $134,600 of deferred maintenance and investment not considered by the appraiser. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could S-22 4332 be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 4333 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of October 31, 2017 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 4334 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 4335 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $4,837,000 of balloon payments due on its mortgage debt in October, 2003. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 4336 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.23% interest, consisting of a 2.25% limited partnership interest and a 0.019% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 4337 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 4338 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on October 15, 2003 and require balloon payments totaling $4,837,000. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2003 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. A sale of your partnership's assets could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale S-29 4339 transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,943 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-30 4340 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,185 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-31 4341 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D"' for poor). We have rated your property's location A (excellent) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided the property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $815,619 10.5% $7,764,000
- --------------- (1) The total net operating income is equal to total revenues of $1,653,865, less total expenses of $764,296 and recurring replacement costs of $74,400. S-32 4342 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,466,849. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 88.91% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 815,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 7,764,000 Plus: Cash and cash equivalents............................. 335,401 Plus: Other partnership assets, net of security deposits.... 583,082 Less: Mortgage debt, including accrued interest............. (5,376,902) Less: Accounts payable and accrued expenses................. (156,166) Less: Other liabilities..................................... (353,866) ----------- Partnership valuation before taxes and certain costs........ 2,795,549 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (134,600) Less: Closing costs......................................... (194,100) ----------- Estimates net valuation of your partnership................. 2,466,849 Percentage of estimated net valuation allocated to holders of units.................................................. 88.91% ----------- Estimated net valuation of units............................ 2,193,270 Total number of units............................. 44.5 ----------- Estimated valuation per unit................................ 49,287 ----------- Cash consideration per unit................................. 49,287 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $49,287 by the $25 liquidation preference of each Preferred OP Unit to get 1,971.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $49,287 by a price of $38.69 to get 1,274 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,466,849 or .43% is the net valuation of your partnership. S-33 4343 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $64,000 for the nine months ended September 30, 1997 to a net loss of $5,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 4344 11. The estimated unit value of $49,287, based on a total estimated value of your partnership's property of $7,764,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,943 per year on the number of Preferred OP Units, or distributions of $3,185 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 4345 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; (d) the net book value of your units; and (e) the recent appraisals of your partnership's property. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 4346 Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 1, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $49,287 Partnership preferred units................................. $49,287(1) Partnership common units.................................... $49,287(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $49,287 Estimated going concern value............................. $40,375 Net book value............................................ $24,652
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. [Appraisals Your partnership's property was appraised in 1998 by an independent third party appraiser, Appraisal Company of America (the "Appraiser") but not in connection with the offer. According to the appraisal reports, the scope of the appraisals included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and the sales comparison approach, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice. The estimated market value of the fee simple estate of the property was $9,500,000 as of April 3, 1998. The total appraised value of the property is $9,500,000 and was not brought down to a per unit basis by us since such appraisal does not reflect the mortgage encumbering the property of $5,304,000 (including interest), other assets and liabilities of the partnership or any costs of sales of the property as reflected in "Valuation of Units." However, using the appraisal amount instead of the "estimated gross valuation of your partnership's property" in the table in the "Valuation of Units" would result in a higher amount per unit than our offer. We believe that, based on the condition of the property, the appraisals substantially overstate its value. The appraisals did not take into account the deferred maintenance costs of the partnership's property. Therefore, we believe that the appraisals are less meaningful in assessing the fairness of our offer S-37 4347 consideration than the analysis described above under "Valuation of Units." On this basis, we believe that our offer consideration is fair in relation to such appraisal amounts. The Appraiser performed the real estate appraisals in the normal course of its business and the executive officers who rendered the report are members of the Appraisal Institute. No limitations were imposed on the Appraiser by the general partner. A copy of the appraisals may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited S-38 4348 any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the property and the actual amounts for which the partnership's property or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $40,375 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is only $24,652 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $38,281 per unit, going concern value of $35,645 per unit and liquidation value of $34,624 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $11,006, $13,642 and $14,663. In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 88.91% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-39 4349 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general S-40 4350 market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SHARON WOODS, L.P. ------------------ Total Revenues.............................................. $1,821,185 Operating Expenses.......................................... (868,757) Replacement Reserves -- Net................................. (213,183) Debt Service................................................ (490,404) Capital Expenditures........................................ (65,400) ---------- Net Cash Flow..................................... $ 183,441 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. S-41 4351 Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rates ranging from 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $134,600. Stanger observed that your partnership liquidation value of $2,466,849 was divided by the total units outstanding of 44.5 to provide the liquidation value per unit of $49,287. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $815,169 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 44.5 to achieve management's estimate of going concern value of $40,375 per unit. S-42 4352 Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $49,287 per unit is equal to management's estimate of liquidation value, and reflects a 22% premium to management's estimate of going concern value of $40,375. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and terminal capitalization rate of 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13% as described above), plus a premium basis points reflecting the additional risk associated with mortgage debt equal to more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $38,281, $35,645 and $34,624 representing premiums (discounts) to the offer price of (22)%, (28)% and (30)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." S-43 4353 REVIEW OF APPRAISAL Stanger observed that the property was appraised by Appraisal Company of America as of April 3, 1998. The Appraisal was based upon the income appraisal and sales comparison appraisal and did not utilize the cost appraisal. Stanger observed that the property values derived in the income sales comparable appraisals were $9,100,000 and $10,000,000, respectively. Stanger observed that the appraisal weighted each appraisal equally resulting in a value conclusion of $9,500,000. Stanger observed that in connection with the appraisers estimate of value using the sales comparable approach, the appraiser identified six sales transactions averaging 32,900 per apartment unit. The appraiser based his conclusion on a per apartment unit value of $40,000. Stanger further observed that the appraiser estimated net operating income (including a reserve for replacements at $450 per apartment unit) at $925,000 and capitalized such income at 10.25% to derive his estimate of value in accordance with the income approach. Stanger observed that net operating income for 1996, 1997 and annualized nine months of 1998, after a $450 per unit replacement reserve is $622,700, $777,000 and $616,000 and vary materially and adversely to the appraisers estimate of net operating income of $925,000. Stanger also observed that the average sales price of the comparable property sales identified by the Appraiser was approximately $32,900 per apartment unit and the appraiser utilized a per apartment unit price of $40,000. Stanger observed that the gross property value determined by AIMCO was based upon net operating income 815,000 and a 10.5% capitalization rate resulting in a gross property value of 7,764,000 or approximately $31,300 per apartment unit, a 5% variance from the average of the sales comparables identified by the appraiser. Stanger advised us that Stanger considered the Appraisal in connection with its preparation of the Fairness Opinion. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness S-44 4354 Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-45 4355 YOUR PARTNERSHIP GENERAL Sharon Woods, L.P., is a Delaware limited partnership which completed a private offering in 1983. Insignia acquired the general partner of your partnership in December, 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 57 limited partners of your partnership and a total of 44.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 28, 1985 for the purpose of owning an apartment property located in Sharonville, Ohio, known as "Timber Ridge Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1972 and consists of 248 apartment units. Your partnership's property had an average occupancy rate of approximately 89% in 1998, 92 % in 1997 and 92% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $134,600 and are intended to be paid for out of cash flow or borrowings. Renovation items include exterior paint, stair wells, balconies, sidewalks, parking lot, and pool. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $515 $489 $472 $472 $341
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $108,965 of $2,590,000 of assessed valuation with a current yearly tax rate of 4.21%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 4.42% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-46 4356 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 89% and $514, respectively, at December 31, 1998, compared to 92% and $515, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy and rental rates to improve in the near future because the property is located in a strong market. In addition, the general partner noted that it expects to spend approximately $134,600 for capital improvements at the property in 1999 to repair and improve the property's exterior paint, balconies, sidewalks, parking lot and pool. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $5,117,299, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due on October 15, 2003. Your partnership also has a second mortgage note outstanding of $168,300, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your S-47 4357 partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loan outstanding to your . COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,889,000 of limited partnership units in 1983 for $64,921 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 1, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership and which in good faith, they believed to be in the best interests of your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-48 4358 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $64,921.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS YEAR ENDED --------------------------------------- LIMITED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ----------- ------- ------------------ ------------------ ------------ 1993.................................. $ 7,500 $ 0 $0 $ 75,975 1994.................................. 0 0 0 0 1995.................................. 0 0 0 0 1996.................................. 0 0 0 0 1997.................................. 3,865 21,000 0 39,152 1998.................................. 0 0 0 0 ------- ------- -- -------- Total....................... $11,365 $21,000 $0 $115,127 ======= ======= == ========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows: BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.23% interest in your partnership, including 1 unit held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 4359 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $26,200 1995........................................................ 36,650 1996........................................................ 38,000 1997........................................................ 38,000 1998........................................................ 33,861
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1995........................................................ $77,630 1996........................................................ 78,000 1997........................................................ 83,000 1998........................................................ 85,230
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 4360 SELECTED FINANCIAL INFORMATION OF SHARON WOODS, L.P. Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Shannon Manor Apartments, a Limited Partnership taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial information which is not included in this Prospectus Supplement. See "Index to Financial Statements."
SEPTEMBER 30, DECEMBER 31, ------------------- ----------------------------------------------------------- SELECTED FINANCIAL INFORMATION 1998 1997 1997 1996 1995 1994 1993 ------------------------------ ------- --------- --------- -------- ---------- ---------- ---------- (In thousands, except per unit data) Cash and Cash Equivalents.................. $ 356 $ 291 $ 335 $ 437 $ 185 $ 278 $ 276 Land & Building............................ 6,995 6,855 6,874 6,748 6,641 6,449 5,773 Accumulated Depreciation................... (1,286) (1,019) (1,085) (818) (565) (331) (137) Other Assets............................... 409 437 415 380 556 564 1,131 ------- --------- --------- -------- ---------- ---------- ---------- Total Assets....................... $ 6,474 $ 6,564 $ 6,539 $ 6,747 $ 6,817 $ 6,960 $ 7,043 ======= ========= ========= ======== ========== ========== ========== Notes Payable.............................. $ 5,341 $ 5,302 $ 5,296 $ 5,353 $ 5,404 $ 5,452 $ 5,494 Other Liabilities.......................... 223 211 228 235 216 218 115 ------- --------- --------- -------- ---------- ---------- ---------- Total Liabilities.................. $ 5,464 $ 5,513 $ 5,524 $ 5,588 $ 5,620 $ 5,670 $ 5,609 ------- --------- --------- -------- ---------- ---------- ---------- Partners Capital (Deficit)......... $ 1,010 $ 1,051 $ 1,015 $ 1,159 $ 1,197 $ 1,290 $ 1,434 ======= ========= ========= ======== ========== ========== ==========
SHARON WOODS --------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ----------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- --------- --------- -------- ---------- ---------- ---------- Rental Revenue............................. $ 1,134 $ 1,140 $ 1,532 $ 1,456 $ 1,404 $ 1,406 $ 1,015 Other Income............................... 91 113 144 132 122 123 171 ------- --------- --------- -------- ---------- ---------- ---------- Total Revenue...................... $ 1,225 $ 1,253 $ 1,676 $ 1,588 $ 1,526 $ 1,529 $ 1,186 ------- --------- --------- -------- ---------- ---------- ---------- Operating Expenses......................... $ 594 $ 559 $ 765 $ 755 $ 764 $ 591 $ 480 General & Administrative................... 37 28 43 56 30 235 157 Depreciation............................... 201 201 268 253 234 194 137 Interest Expense........................... 313 320 459 465 487 437 446 Property Taxes............................. 85 81 92 97 104 216 260 ------- --------- --------- -------- ---------- ---------- ---------- Total Expenses..................... $ 1,230 $ 1,189 $ 1,627 $ 1,626 $ 1,619 $ 1,673 $ 1,480 ------- --------- --------- -------- ---------- ---------- ---------- Net Income before extraordinary items...... $ (5) $ 64 $ 49 $ (38) $ (93) $ (144) $ (294) Extraordinary Items........................ -- -- -- -- -- -- -- ------- --------- --------- -------- ---------- ---------- ---------- Net Income................................. $ (5) $ 64 $ 49 $ (38) $ (93) $ (144) $ (294) ======= ========= ========= ======== ========== ========== ========== Net Income per limited partnership unit.... $(98.80) $1,264.64 $ 968.24 $(755.56) $(1,837.68) $(2,845.44) $(5,808.44) ======= ========= ========= ======== ========== ========== ========== Distributions per limited partnership unit..................................... $ -- $3,398.72 $3,822.22 $ -- $ -- $ -- $ -- ======= ========= ========= ======== ========== ========== ==========
S-51 4361 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership incurred a loss of $5,000 for the nine months ended September 30, 1998, compared to net income of $64,000 for the nine months ended September 30, 1997. The decrease in net income of $69,000 was primarily the result of a decrease in rental revenues and other income and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,225,000 for the nine months ended September 30, 1998, compared to $1,253,000 for the nine months ended September 30, 1997, a decrease of $28,000, or 2.23%. The Partnership increased rental rates by an average of 5.3%, which was partially offset by a decrease in occupancy of 3% to 89%. In addition, concessions to tenants increased $28,597. Other Income decreased $22,000 to $91,000, primarily due to lower lease cancellation fees. Further, the property's laundry income, late charges, and cleaning and damage fees decreased in the current period. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $594,000 for the nine months ended September 30, 1998, compared to $559,000 for the nine months ended September 30, 1997, an increase of $35,000, or 6.26%. The increase is primarily due to maintenance expenses. The Partnership incurred costs for interior building improvements, floor covering and interior painting costs in relation to a remodeling project during 1998 as compared to the corresponding period for 1997. In addition, ground maintenance costs increased $6,000. Partnership Property management expenses of $63,000 were comparable to those of the previous period. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $9,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher asset management fees charged by affiliates of the General Partner for handling partnership administrative matters and an increase in professional fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $313,000 for the nine months ended September 30, 1998, compared to $320,000 for the nine months ended September 30, 1997, a decrease of $7,000, or 2.2%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. S-52 4362 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $49,000 for the year ended December 31, 1997, compared to a net loss of $38,000 for the year ended December 31, 1996. The increase in net income of $87,000 was primarily the result of an increase in rental revenues and other income. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,676,000 for the year ended December 31, 1997, compared to $1,588,000 for the year ended December 31, 1996, an increase of $88,000, or 5.54.%. This increase is due primarily to a 5.3% increase in average rental rates. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $765,000 for the year ended December 31, 1997, compared to $755,000 for the year ended December 31, 1996, an increase of $10,000 or 1.32%. The increase is primarily due to the increase in corporate unit expense, while maintenance and other operating costs were comparable to the preceding year. Management expenses totaled $83,000 for the year ended December 31, 1997, compared to $78,000 for the year ended December 31, 1996, an increase of $5,000, or 6.41%. The increase resulted from an increase in rental revenue as management fees are calculated based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $43,000, a decrease of $13,000 for the year ended December 31, 1997, compared to the prior year. This decrease is due primarily to lower professional fees and general decreases in partnership administrative and asset management costs. DEPRECIATION EXPENSE Depreciation expense increased $15,000 (5.93%) to $268,000, due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $459,000 for the year ended December 31, 1997, compared to $465,000 for the year ended December 31, 1996, a decrease of $6,000, or 1.29%. The decrease is a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $38,000 for the year ended December 31, 1996, compared to a net loss of $93,000 for the year ended December 31, 1995. The decrease in net loss of $55,000 was primarily the result of an increase in rental revenues and a decrease in operating expenses and interest expense. These factors are discussed in more detail in the following paragraphs. REVENUES Rental revenues from the partnership's property totaled $1,456,000 for the year ended December 31, 1996, compared to $1,404,000 for the year ended December 31, 1995, an increase of $52,000, or 3.7%. This increase is due primarily to a 3.6% increase in rental rates. Other income totaled $132,000 for the year ended S-53 4363 December 31, 1996, an increase of $10,000 which is due to higher pet fees and lease cancellation fees. In addition, cleaning and damage fees increased slightly in comparison to the prior year. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $755,000 for the year ended December 31, 1996, compared to $764,000 for the year ended December 31, 1995, a decrease of $9,000 or 1.18%. This decrease is primarily due to a decrease in corporate unit expense of $17,452. This is offset by an overall increase in administrative and management fees from 1995. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $56,000, an increase of $26,000 for the year ended December 31, 1996, compared to the prior year. This increase is due primarily to higher partnership administrative expenses and asset management costs. DEPRECIATION EXPENSE Depreciation expense increased $19,000 (8.12%) to $253,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $465,000 for the year ended December 31, 1996, compared to $487,000 for the year ended December 31, 1995, a decrease of $22,000, or 4.52%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $356,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on all mortgage indebtedness was $5,241,000. For the primary mortgage, monthly installments of principal and interest of approximately $40,000 are due through September 2003, with a balloon payment of $4,669,000 due in October 2003. The note is secured by a deed of trust on the Timber Ridge Apartments and has a stated interest rate of 7.83%. The subordinated mortgage note payable requires monthly payments of interest only, totaling approximately $1,000, which are due through September 2003, with a balloon payment of $168,000 due in October 2003. This note bears interest of 7.83% per annum. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 4364 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 23% of the outstanding 44.5 units of your partnership (up to 10.13 units) for consideration per unit of (i) 1971.50 Preferred OP Units, (ii) 1,274 Common OP Units, or (iii) $49,287 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 4365 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 4366 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 4367 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 4368 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 4369 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 23% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 23% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 23% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 23%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 4370 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to its property or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 4371 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 4372 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 4373 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 4374 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 4375 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 4376 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 4377 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 4378 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 4379 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 4380 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 4381 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's property. Partnership is to conduct any business that Subject to restrictions contained in your may be lawfully conducted by a limited partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all acts necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 4382 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 45 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and have subsidiaries or other persons in which it other transactions with per- has an equity investment,
S-73 4383 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sons who are partners or who are affiliates and such persons may borrow funds from the of partners. Any and all compensation paid AIMCO Operating Partnership, on terms and to such persons in connection with services conditions established in the sole and performed for your partnership must be absolute discretion of the general partner. commensurate with that which would be paid To the extent consistent with the business to an independent person for similar purpose of the AIMCO Operating Partnership services and all agreements must be in and the permitted activities of the general writing. Your partnership may not make loans partner, the AIMCO Operating Partnership may to any partners but the general partner may transfer assets to joint ventures, limited make loans to your partnership; provided liability companies, partnerships, that the interest and fees received by the corporations, business trusts or other general partner in connection with such business entities in which it is or thereby loans are not in excess of the amounts which becomes a participant upon such terms and would be charged by an unrelated bank and subject to such conditions consistent with the general partner does not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each limited partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partners. Your partnership furnishes such business, residence or mailing address of information to any limited partner the general partner and each other OP requesting the same in writing, upon payment Unitholder. of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your All management powers over the business and partnership business, activities and affairs of the AIMCO Operating Partnership operations is vested solely in the general are vested in AIMCO-GP, Inc., which is the partner. The general partners have full, general partner. No OP Unitholder has any exclusive and complete authority and dis- right to participate in or exercise control cretion in the management and control of the or management power over the busi- busi-
S-74 4384 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ness, activities and operations of your ness and affairs of the AIMCO Operating partnership for the purposes stating in your Partnership. The OP Unitholders have the partnership's agreement of limited right to vote on certain matters described partnership and may make all decisions under "Comparison of Your Units and AIMCO OP affecting the conduct of the business of Units -- Voting Rights" below. The general your partnership. The general partner partner may not be removed by the OP possesses and may enjoy and exercise all of Unitholders with or without cause. the rights and powers of general partner as more particularly provided under applica- In addition to the powers granted a general ble law, except to the extent any such partner of a limited partnership under rights are limited or restricted by the applicable law or that are granted to the express provisions of your partnership's general partner under any other provision of agreement of limited partnership. Limited the AIMCO Operating Partnership Agreement, partners may not take part in the management the general partner, subject to the other of the business, affairs and operations of provisions of the AIMCO Operating your partnership, transact any business for Partnership Agreement, has full power and your partnership, do not have any power, authority to do all things deemed necessary right or authority to enter into any or desirable by it to conduct the business agreement, execute or sign documents for, of the AIMCO Operating Partnership, to make representation on behalf of nor to exercise all powers of the AIMCO Operating otherwise act so as to bind your partnership Partnership and to effectuate the purposes in any manner. of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship and which in good faith, they believed indemnification of AIMCO, or any director or to be in the best interests of your officer of AIMCO (in its capacity as the partnership, excepting only acts of previous general partner of the AIMCO malfeasance, gross negligence or actual mis- Operating Partnership), the general partner, representation. In addition, the general any officer or director of general partner partner and its affiliates are entitled to or the AIMCO Operating Partnership and such indemnification by your partnership for any other persons as the general partner may and all acts performed by them in the good designate from and against all losses, faith belief that the act or omission was in claims, damages, liabilities, joint or the best interests of your partnership and several, expenses (in- which
S-75 4385 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP are reasonably within the scope of the cluding legal fees), fines, settlements and authority conferred upon them by your other amounts incurred in connection with partnership's agreement of limited any actions relating to the operations of partnership or by your partnership, the AIMCO Operating Partnership, as set excepting only acts of malfeasance, gross forth in the AIMCO Operating Partnership negligence or actual misrepresentation; Agreement. The Delaware Limited Partnership provided, however, that such indemnity will Act provides that subject to the standards be paid out of and only to the extent of and restrictions, if any, set forth in its partnership assets. partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause and the business and affairs of the AIMCO elect a successor general partner upon a Operating Partnership. The general partner vote of the limited partners owning a may not be removed as general partner of the majority of the outstanding units. The AIMCO Operating Partnership by the OP general partners may not transfer, assign, Unitholders with or without cause. Under the sell, withdraw or otherwise dispose of their AIMCO Operating Partnership Agreement, the interest unless it obtains the prior written general partner may, in its sole discretion, consent of those persons owning more than prevent a transferee of an OP Unit from 50% of the units and satisfies other becoming a substituted limited partner conditions set forth in your partnership's pursuant to the AIMCO Operating Partnership agreement of limited partnership. Such Agreement. The general partner may exercise consent is also necessary for the approval this right of approval to deter, delay or of a new general partner when there is no hamper attempts by persons to acquire a remaining general partner. A limited partner controlling interest in the AIMCO Operating may not transfer his interests without the Partnership. Additionally, the AIMCO written consent of the general partners Operating Partnership Agreement contains which may be withheld at the sole discretion restrictions on the ability of OP of the general partners. Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partners to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the outstanding partnership and as required by law. Amend- Common OP Units, excluding AIMCO ments of specified provisions of your partnership's
S-76 4386 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership may be made and certain other limited exclusions (a only with the prior written consent of all "Majority in Interest"). Amendments to the partners. Other amendments must be approved AIMCO Operating Partnership Agreement may be by the limited partners owning more than 50% proposed by the general partner or by of the units. holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $5,800 annually and may receive its capacity as general partner of the AIMCO other fees for additional services. Operating Partnership. In addition, the Moreover, the general partner or certain AIMCO Operating Partnership is responsible affiliates may be entitled to compensation for all expenses incurred relating to the for additional services rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of losses of your liability of the OP Unitholders for the partnership beyond its obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-77 4387 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partners have fiduciary Unless otherwise provided for in the responsibility for the safekeeping and use relevant partnership agreement, Delaware law of all funds and assets of your partnership. generally requires a general partner of a The general partners must manage and control Delaware limited partnership to adhere to the affairs of your partnership to the best fiduciary duty standards under which it owes of their abilities and must exercise good its limited partners the highest duties of faith in carrying out the business of your good faith, fairness and loyalty and which partnership as set for in your partnership's generally prohibit such general partner from agreement of limited partnership. The taking any action or engaging in any general partners must devote such time and transaction as to which it has a conflict of attention to the business, affairs and interest. The AIMCO Operating Partnership operations of your partnership business, as Agreement expressly authorizes the general they, in their sole discretion, deem partner to enter into, on behalf of the necessary for the property performance of AIMCO Operating Partnership, a right of their duties. However, the general partners first opportunity arrangement and other may, now and in the future, engage in or conflict avoidance agreements with various hold interests in other business ventures of affiliates of the AIMCO Operating every kind and description for their own Partnership and the general partner, on such account including, without limitation, terms as the general partner, in its sole ventures such as those undertaken by your and absolute discretion, believes are partnership. Neither your partnership nor advisable. The AIMCO Operating Partnership any of the partners will have any right in Agreement expressly limits the liability of or to such independent business ventures or the general partner by providing that the the income or profits derived therefrom. general partner, and its officers and directors will not be liable or accountable In general, your partnership's agreement of in damages to the AIMCO Operating limited partnership and the AIMCO Operating Partnership, the limited partners or as- Partnership Agreement have limitations on signees for errors in judgment or mistakes the liability of the general partner but of fact or law or of any act or omission if such limitations differ and provide more the general partner or such director or protection for the general partner of the officer acted in good faith. See AIMCO Operating Partnership. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the
S-78 4388 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating
S-79 4389 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agreement Units. See "Description of Operating Partnership of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your partnership; outstanding, in addition to proceedings, an assignment remove a general partner for any other vote or consent of for the benefit of creditors cause; elect a substitute partners required by law or and certain transfers by the general partner and approve by the AIMCO Operating general partner of its or disapprove the sale of Partnership Agreement, the interest in the AIMCO all or substantially all of affirmative vote or consent Operating Partnership or the the assets of your of holders of at least 50% admission of a successor partnership. of the outstanding Preferred general partner. OP Units will be necessary A general partner may cause for effecting any amendment Under the AIMCO Operating the dissolution of your of any of the provisions of Partnership Agreement, the partnership by retiring when the Partnership Unit general partner has the there is no remaining Designation of the Preferred power to effect the general partner unless, the OP Units that materially and acquisition, sale, transfer, limited partners owning more adversely affects the rights exchange or other the 50% of the then or preferences of the disposition of any assets of outstanding units elect to holders of the Preferred OP the AIMCO Operating reconstitute your partner- Units. The creation or Partnership (including, but ship and admit a new issuance of any class or not limited to, the exercise general. series of partnership units, or grant of any conversion, including, without option, privilege or In general, you have greater limitation, any partner- subscription right or any voting rights in your ship units that may have other right available in partnership than you will rights senior or superior to connection with any assets have as an OP Unitholder. OP the Preferred OP Units, at any time held by the Unitholders cannot remove shall not be deemed to AIMCO Operating Partnership) the general partner of the materially adversely affect or the merger, AIMCO Operating Partnership. the rights or preferences of consolidation, the holders of Preferred OP reorganization or other Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi-
S-80 4390 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion cash funds as the general and from time to time on or determine, of Available Cash partner may, in its discre- after the fifth anniversary (as defined in the AIMCO tion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. Your applicable to U.S. Treasury tablished by the general partnership has made notes with a maturity of partner with respect to such distributions in the past five years, and (ii) the quarter, in accordance with and is projected to make annual dividend rate on the their respective interests distributions in 1999. most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Pre- Cumulative Preferred
S-81 4391 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock. Such distributions ferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be and the Pre- Oper-
S-82 4392
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS substituted as a limited ferred OP Units are not ating Partnership Agreement partner by such person if: listed on any securities restricts the (1) the interest being exchange. The Preferred OP transferability of the OP acquired by the assignee Units are subject to Units. Until the expiration consists of assignors entire restrictions on transfer as of one year from the date on interest, (2) a written set forth in the AIMCO which an OP Unitholder assignment has been duly Operating Partnership acquired OP Units, subject executed and acknowledged by Agreement. to certain exceptions, such the assignor and assignee, OP Unitholder may not (3) the written approval of Pursuant to the AIMCO transfer all or any por- the general partners which Operating Partnership tion of its OP Units to any may be withheld in the sole Agreement, until the transferee without the and absolute discretion of expiration of one year from consent of the general the general partners has the date on which a holder partner, which consent may been granted, (4) the of Preferred OP Units be withheld in its sole and assignor or the assignee acquired Preferred OP Units, absolute discretion. After pays a transfer fee (5) the subject to certain the expiration of one year, transfer will not result in exceptions, such holder of such OP Unitholder has the a termination of your Preferred OP Units may not right to transfer all or any partnership for tax pur- transfer all or any portion portion of its OP Units to poses, (7) the transfer does of its Preferred OP Units to any person, subject to the not violate any applicable any transferee without the satisfaction of certain con- securities laws and (8) the consent of the general ditions specified in the assignor and assignee have partner, which consent may AIMCO Operating Partnership complied with such other be withheld in its sole and Agreement, including the conditions as set forth in absolute discretion. After general partner's right of your partnership's agreement the expiration of one year, first refusal. See of limited partnership. such holders of Preferred OP "Description of OP Units -- There are no redemption Units has the right to Transfers and Withdrawals" rights associated with your transfer all or any portion in the accompanying units. of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred elect to cause AIMCO to
S-83 4393 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 4394 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 4395 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 4396 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 4397 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 4398 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 4399 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 4400 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 4401 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-92 4402 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 4403 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner receive $5,800 annually and may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $38,000 in 1996, $38,000 in 1997 and $33,861 in 1998. The property manager received management fees of $78,000 in 1996, $83,000 in 1997 and $85,230 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 4404 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $499,031 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 4405 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Sharon Woods, L.P. at December 31, 1997, and for the year then ended, as set forth in their report. We've included the consolidated financial statements of Sharon Woods, L.P. in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-96 4406 SHARON WOODS, L.P. INDEX TO FINANCIAL STATEMENT
PAGE ---- Condensed Consolidated Balance Sheet as of September 30, 1998 (Unaudited).......................................... F-2 Condensed Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)...... F-4 Note A -- Basis of Presentation (unaudited)................. F-5 Independent Auditors' Report................................ F-6 Consolidated Balance Sheet as of December 31, 1997.......... F-7 Consolidated Statement of Operations for the year ended December 31, 1997......................................... F-8 Consolidated Statement of Changes in Partners Capital for the year ended December 31, 1997.......................... F-9 Consolidated Statement of Cash Flows for the year ended December 31, 1997......................................... F-10 Notes to Consolidated Financial Statements.................. F-11 Consolidated Balance Sheet as of December 31, 1996 (unaudited)............................................... F-16 Consolidated Statement of Operations for the year ended December 31, 1996 (unaudited)............................. F-17 Consolidated Statement of Changes in Partners Capital for the year ended December 31, 1996 (unaudited).............. F-18 Consolidated Statement of Cash Flows for the year ended December 31, 1996 (unaudited)............................. F-19 Notes to Consolidated Financial Statements (unaudited)...... F-20
F-1 4407 SHARON WOODS CONDENSED CONSOLIDATED BALANCE SHEET -- UNAUDITED (IN THOUSANDS) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 356 Receivables and deposits.................................... 141 Restricted escrows.......................................... 112 Other assets................................................ 156 Investment property: Land...................................................... $ 859 Building and related personal property.................... 6,136 ------- 6,995 Less: Accumulated depreciation............................ (1,286) 5,709 ------- ------ Total assets...................................... $6,474 ====== LIABILITIES AND PARTNERS' CAPITAL Accounts payable accrued liabilities........................ $ 223 Notes payable............................................... 5,241 Partners' Capital................................. 1,010 ------ Total liabilities and partners' capital........... $6,474 ======
See accompanying note F-2 4408 SHARON WOODS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ------- ------- Revenues: Rental income............................................. $1,134 $1,140 Other income.............................................. 91 113 ------ ------ Total revenues.................................... 1,225 1,253 Expenses: Operating expenses........................................ 594 559 General and administrative expenses....................... 37 28 Depreciation expense...................................... 201 201 Interest expense.......................................... 313 320 Property tax expense...................................... 85 81 ------ ------ Total expenses.................................... 1,230 1,189 Net income (loss)................................. $ (5) $ 64 ====== ======
See accompanying note. F-3 4409 SHARON WOODS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------- 1998 1997 ----- ----- Operating activities: Net income (loss)......................................... $ (5) $ 64 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 201 201 Changes in accounts: Receivables and deposits and other assets.............. 10 (54) Accounts payable and accrued expenses.................. (5) (24) ----- ----- Net cash provided by operating activities......... 201 187 Investing activities: Property improvements and replacements.................... (121) (107) Net increase in restricted escrows........................ (4) (3) ----- ----- Net cash used in investing activities..................... (125) (110) Financing activities: Payments on mortgage...................................... (55) (51) Partners' distributions................................... -- (172) ----- ----- Net cash used in financing activities..................... (55) (223) ----- ----- Net increase (decrease) in cash and cash equivalents...... 21 (146) Cash and cash equivalents at beginning of year............ 335 437 ----- ----- Cash and cash equivalents at end of period................ $ 356 $ 291 ===== =====
See accompanying note. F-4 4410 SHARON WOODS, L. P. NOTE TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Sharon Woods, L.P. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 4411 REPORT OF INDEPENDENT AUDITORS The Partners Sharon Woods, L. P. (A Delaware Limited Partnership) We have audited the accompanying consolidated balance sheet of Sharon Woods, L.P. (A Delaware Limited Partnership) as of December 31, 1997 and the related consolidated statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sharon Woods, L.P., at December 31, 1997 and the consolidated results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 4412 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 335 Receivables and deposits.................................... 156 Restricted escrows.......................................... 108 Other assets................................................ 151 Investment property (Notes B and D): Land...................................................... $ 859 Buildings and related personal property................... 6,015 ------- 6,874 Less accumulated depreciation............................. (1,085) 5,789 ------- ------ $6,539 ====== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 44 Tenant security deposit liability......................... 50 Other liabilities......................................... 134 Mortgage notes payable (Note B)........................... 5,296 ------ 5,524 Partners' capital: General partners.......................................... $ 141 Limited partners (45 units issued and outstanding)........ 874 1,015 ------- ------ $6,539 ======
See accompanying notes. F-7 4413 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,532 Other income.............................................. 144 ------- 1,676 Expenses: Operating................................................. $765 General and administrative................................ 43 Depreciation.............................................. 268 Interest.................................................. 459 Property taxes............................................ 92 1,627 ---- ------- Net income.................................................. $ 49 ======= Net income allocated to general partners (11.08%)........... $ 5 Net income allocated to limited partners (88.92%)........... 44 ------- $ 49 ======= Net income per limited partnership unit..................... $968.24 =======
See accompanying notes. F-8 4414 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Capital at December 31, 1996................................ $157 $1,002 $1,159 Net income................................................ 5 44 49 Distributions to partners................................. (21) (172) (193) ---- ------ ------ Capital at December 31, 1997................................ $141 $ 874 $1,015 ==== ====== ======
See accompanying notes. F-9 4415 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 49 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 268 Amortization of loan costs and mortgage discount....... 37 Change in accounts: Receivables and deposits............................. (57) Accounts payable..................................... 7 Tenant security deposit liabilities.................. 1 Other liabilities.................................... (15) ----- Net cash provided by operating activities................. 290 Cash flows from investing activities Property improvements and replacements.................... (126) Deposits to restricted escrows............................ (5) ----- Net cash used in investing activities..................... (131) Cash flows from financing activities Principal payments on mortgage notes payable.............. (68) Distributions to partners................................. (193) ----- Net cash used in financing activities..................... (261) ----- Net decrease in cash and cash equivalents................. (102) Cash and cash equivalents at December 31, 1996............ 437 ----- Cash and cash equivalents at December 31, 1997............ $ 335 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 423 ===== Distributions payable..................................... $ 21 =====
See accompanying notes. F-10 4416 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Principles of Consolidation The financial statements include the accounts of the Partnership and its majority owned partnerships. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership approximates its carrying value. F-11 4417 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs of approximately $258,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $107,000 at December 31, 1997. These costs are included in "Other Assets". Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Partnership Allocations Net income or losses are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $108,000. F-12 4418 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of approximately $40,000 are due through September 2003, with a balloon payment of $4,669,000 due in October 2003................. $5,191 Subordinated mortgage note payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling approximately $1,000, are due through September 2003, with a balloon payment of $168,000 due in October 2003.............................. 168 ------ 5,359 Unamortized discount, net of accumulated amortization of approximately $47,000..................................... (63) ------ $5,296 ======
Principal maturities of mortgage notes payable at December 31, 1997 are as follows (in thousands): 1998........................................................ $ 73 1999........................................................ 79 2000........................................................ 86 2001........................................................ 93 2002........................................................ 100 Thereafter.................................................. 4,928 ------ $5,359 ======
The apartment property is pledged as collateral on the mortgage notes. NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L.P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $83 Reimbursement for investor services, asset management and partnership accounting.................................... 38
For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. F-13 4419 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
COST BUILDINGS CAPITALIZED AND RELATED SUBSEQUENT PERSONAL TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ----------- Timber Ridge, Sharonville, Ohio.................... $5,359 $859 $4,867 $1,148 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ---- ----------- -------- ------------ -------- ------------- Timber Ridge.................. $859 $ 6,015 $ 6,874 $ 1,085 03/01/93 5-30 ==== ======== ======== ========
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $6,748 Property improvements..................................... 126 ------ Balance at end of year.................................... $6,874 ====== Accumulated Depreciation Balance at beginning of year.............................. $ 817 Additions charged to expense.............................. 268 ------ Balance at end of year.................................... $1,085 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $6,874,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $1,204,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 49 Deduct: Depreciation differences............................ (19) ------- Federal taxable income...................................... $ 30 ======= Federal taxable income per limited partnership unit......... $592.80 =======
F-14 4420 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported...................................... $1,015 Accumulated depreciation.................................... (119) Syndication fees............................................ 182 Other....................................................... 19 ------ Net assets -- tax basis..................................... $1,097 ======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 4421 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEET -- UNAUDITED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 437 Receivables and deposits.................................... 99 Restricted escrows.......................................... 104 Loan costs, net of accumulated amortization of $81.......... 177 Investment property (Notes B and D): Land...................................................... $ 859 Buildings and related personal property................... 5,889 ------ 6,748 Less accumulated depreciation............................. (818) 5,930 ------ ------ $6,747 ====== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and other accrued liabilities............ $ 205 Tenant security deposit liability......................... 30 Mortgage notes payable (Note B)........................... 5,353 ------ 5,588 Partners' capital: General partners.......................................... $ 157 Limited partners (45 units issued and outstanding)........ 1,002 1,159 ------ ------ $6,747 ======
See accompanying notes. F-16 4422 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF OPERATIONS -- UNAUDITED YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,456 Other income.............................................. 132 -------- 1,588 Expenses: Operating................................................. $740 General and administrative................................ 56 Depreciation.............................................. 253 Interest.................................................. 465 Bad debt expense.......................................... 15 Property taxes............................................ 97 1,626 ---- -------- Net loss.......................................... $ (38) ======== Net loss allocated to general partners (11.08%)............. (4) Net loss allocated to limited partners (88.92%)............. (34) -------- $ (38) ======== Net loss per limited partnership unit............. $(755.56) ========
See accompanying notes F-17 4423 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL -- UNAUDITED YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Capital at December 31, 1995................................ $161 $1,036 $1,197 Net loss.................................................. (4) (34) (38) ---- ------ ------ Capital at December 31, 1996................................ $157 $1,002 $1,159 ==== ====== ======
See accompanying notes. F-18 4424 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CASH FLOWS -- UNAUDITED YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (38) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 253 Amortization of loan costs and mortgage discount....... 37 Change in accounts: Receivables and deposits and other assets............ (39) Accounts payable and other liabilities............... 19 ----- Net cash provided by operating activities......... 310 Cash flows from investing activities Property improvements and replacements.................... (107) Net deposits to restricted escrows........................ 111 ----- Net cash provided by investing activities......... 4 Cash flows from financing activities Principal payments on mortgage notes payable.............. (62) ----- Net cash used in financing activities............. (62) ----- Net increase in cash and cash equivalents................. 252 Cash and cash equivalents at December 31, 1995............ 185 ----- Cash and cash equivalents at December 31, 1996............ $ 437 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 428 =====
See accompanying notes. F-19 4425 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Principles of Consolidation The financial statements include the accounts of the Partnership and its majority owned partnerships. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership approximates its carrying value. F-20 4426 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Loan Costs Loan costs of approximately $258,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $81,000 at December 31, 1996. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Partnership Allocations Net income or losses are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1996 was approximately $104,000. F-21 4427 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE B -- MORTGAGE NOTE PAYABLE Mortgage note payable consist of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of approximately $40,000 are due through September 2003, with a balloon payment of $4,669,000 due in October 2003................. $5,259 Subordinated mortgage not payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling approximately $1,000, are due through September 2003, with a balloon payment of $168,000 due in October 2003.............................. 168 ------ 5,427 Unamortized discount,net of accumulated amortization of approximately $36,000..................................... (74) ------ $5,353 ======
Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1997........................................................ $ 68 1998........................................................ 73 1999........................................................ 79 2000........................................................ 86 2001........................................................ 93 Thereafter.................................................. 5,028 ------ $5,427 ======
The apartment property is pledged as collateral on the mortgage notes. NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L.P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $78 Reimbursement for investor services, asset management and partnership accounting.................................... $38
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligation was not significant. F-22 4428 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ------------- ---------------- Timber Ridge Sharonville, Ohio............................ $5,353 $859 $4,867 $1,022 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ------------- ------ ------------ -------- ----------- Timber Ridge....................... $859 $5,889 $6,748 $818 03/01/93 5-30
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands):
Investment Property Balance at beginning of year.............................. $6,641 Property improvements..................................... 107 ------ Balance at end of year............................ $6,748 ====== Accumulated Depreciation Balance at beginning of year.............................. $ 565 Additions charged to expense.............................. 253 ------ Balance at end of year............................ $ 818 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is $6,748,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is $917,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. F-23 4429 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data): Net loss as reported........................................ $ (38) Deduct: Depreciation differences.................................. (30) ---------- Federal taxable loss........................................ $ (68) ========== Federal taxable loss per limited partnership unit........... $(1,343.68) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported...................................... $1,159 Accumulated depreciation.................................... (99) Syndication fees............................................ 182 Other....................................................... 18 ------ Net assets -- tax basis........................... $1,260 ======
NOTE F -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc. an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-24 4430 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 4431 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 4432 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 4433 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4434 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4435 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 4436 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 4437 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4438 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4439 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4440 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 4441 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 4442 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 4443 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 4444 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4445 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4446 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4447 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4448 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4449 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4450 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4451 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4452 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4453 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4454 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4455 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4456 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4457
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4458 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4459
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4460 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 4461 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 4462 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 4463
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 4464 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 4465 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 4466 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 4467
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 4468 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 4469 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 4470 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 4471 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 4472 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 4473 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 4474 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 4475 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 4476 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 4477 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 4478 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 4479 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 4480 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Sharon Woods L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Sharon Woods L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $49,287 in cash, or 1,274 Common OP Units of the Purchaser, or 1,971.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 4481 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we received the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 4482 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 4483 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 4484
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 4485
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 4486
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 4487
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4488 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 4489 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Snowden Village Associates, L.P. in exchange for your choice of: 2,185.00 of our 8.0% Class Two Partnership Preferred Units; 1,412.00 of our Partnership Common Units; or $54,621 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $54,621 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 4490 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Snowden Village Associates, L.P.................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59 Extension of Tender Period; Termination; Amendment.................................. S-59 Proration.................................... S-60
i 4491
PAGE ----- Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-80 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ----- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4492 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"),AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $8,500,000, less approximately $976,685 of deferred maintenance and investment. S-1 4493 It is possible that the sale of the property could result in you receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 4494 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2020 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-3 4495 is equivalent to distributions of $4,370 per year on the number of Preferred OP Units, or distributions of $3,530.00 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $3,375 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 4496 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, S-5 4497 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and September 2020. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 4498 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,375 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,370 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,375 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,530 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 4499 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 4500 VALUATION OF UNITS We determined the offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your properties (Snowden Village I and Snowden Village II, respectively) location B (good) and B (good); and its condition B (good) and B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Both your properties mortgage debt bears interest at 7.6% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your properties' net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.49% and 2.18%, respectively, resulting in a final capitalization rate of 8.41% and 8.27%, respectively. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and other evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: SNOWDEN VILLAGE I Net operating income........................................ $ 378,000 Capitalization rate......................................... 8.41% ----------- SNOWDEN VILLAGE II Net operating income........................................ 331,000 Capitalization rate......................................... 8.27% ----------- Gross valuation of partnership property..................... $ 8,500,000 Plus: Cash and cash equivalents............................. 217,500 Plus: Other partnership assets, net of security deposits.... 254,939 Less: Mortgage debt, including accrued interest............. (5,285,272) Less: Accounts payable and accrued expenses................. (64,703) Less: Other liabilities..................................... (29,953) ----------- Partnership valuation before taxes and certain costs........ 3,592,511 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (976,685) Less: Closing costs......................................... (212,500) ----------- Estimated net valuation of your partnership................. 2,403,326 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 2,403,326 Total number of units............................. 44.0 ----------- Estimated valuation per unit................................ 54,621 =========== Cash consideration per unit................................. $ 54,621 ===========
S-9 4501 In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $54,621 by the $25 liquidation preference of each Preferred OP Unit to get 2,185.00 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $54,621 by a price of $38.69 to get 1,412.00 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership; The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 54,621 Partnership Preferred Units................................. $ 54,621 Partnership Common Units.................................... $ 54,621 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 54,621 Estimated going concern value............................. $ 21,981 Alternative Going Concern(1).............................. $ 33,771 Net book value (deficit).................................. $(70,583)
- --------------- (1) Assumes properties are sold at maturity of a mortgage secured by one of the properties in 2002. S-10 4502 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Snowden Village Associates, L.P. is a Delaware limited partnership which was formed on June 21, 1985 for the purpose of owning and operating one property located in Fredericksburg, Virginia, known as "Snowden Village Apartments I" and "Snowden Village Apartments II." Snowden Village Apartments I consists of 132 apartment units and Snowden Village Apartments II consists of 122 apartment units. Your partnership has no employees. As of September 30, 1998, there were 44 units of limited partnership interest issued and outstanding, which were held of record by 73 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,745,000 of limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $3,375 per unit. Your partnership currently one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2020, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,471,646 on Snowden Village Apartments I, payable to Marine Midland Bank and Bank of America, which bears interest at a rate of 7.60%. Such mortgage debt is due November 2002. There is also a mortgage note on Snowden Village Apartments II, the balance of which was $2,668,492, as of September 30, 1998. The note is payable to WMF Huntoon Page, bears interest at 7.50% and is due September 2020. Your partnership also has a second mortgage note outstanding of $89,317, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the S-11 4503 transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 2,185 of our Class Two Partnership Preferred Units; - 1,412.00 of our Partnership Common Units; or - $54,621 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 44 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,185.00 Preferred OP Units, 1,412.00 Common OP Units, or $54,621 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. S-12 4504 Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. S-13 4505 Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. S-14 4506 As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $54,621 in cash, 2,185.00 Preferred OP Units or 1,412.00 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $54,621. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $32,861 for the fiscal year ended December 31, 1998. The property manager received management fees of $91,941 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $600,832 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 4507 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 4508
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 4509 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. (16,740) 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 4510
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 4511 SUMMARY FINANCIAL INFORMATION OF SNOWDEN VILLAGE ASSOCIATES, L.P. The summary financial information of Snowden Village Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Snowden Village Associates, L.P. for the year ended December 31, 1997 is based on audited financial statements and for the years ended December 31, 1996, 1995, 1994 and 1993 is based on unaudited financial statements. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial which are not included in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." SNOWDEN VILLAGE ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues................ $ 1,387 $ 1,205 $ 1,690 $ 1,678 $ 1,739 $ 1,707 $ 1,608 Net Income (Loss)............. 223 50 24 160 (134) (243) (383) Net Income per limited partnership unit............ 5,017.50 1,125.00 544.91 3,600.00 (3,015.00) (5,467.50) (8,617.50) Distributions per limited partnership unit............ 3,375.00 11.25 11.25 1,113.75 -- -- -- Distributions per limited partnership unit (which represent a return of capital).................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 380 $ 425 $ 368 $ 314 $ 233 $ 169 $ 147 Real Estate, Net of Accumulated Depreciation... 2,657 2,681 2,694 2,790 2,855 3,137 3,506 Total Assets................. 3,399 3,490 3,431 3,462 3,454 3,661 3,989 Notes Payable................ 5,149 5,257 5,246 5,371 5,463 5,548 5,600 General Partners' Capital/ (Deficit).................... (57) (58) (58) (58) (60) (59) (57) Limited Partners' Capital/ (Deficit).................... (1,850) (1,895) (1,922) (1,945) (2,054) (1,921) (1,680) Partners' Deficit.............. (1,907) (1,953) (1,980) (2,003) (2,114) (1,980) (1,737) Total Distributions............ 150 1 1 49 -- -- -- Book value per limited partnership unit............. (42,045) (43,068) (43,682) (44,205) (46,682) (43,659) (38,182) Net increase (decrease) in cash and cash equivalents......... 12 69 54 81 64 22 (35) Net cash provided by operating activities................... 406 232 398 377 315 269 101 Ratio of earnings to fixed charges...................... 1.72/1 1.16/1 1.05/1 1.35/1 0.71/1 0.44/1 0.15/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
SNOWDEN AIMCO VILLAGE OPERATING ASSOCIATES, PARTNERSHIP L.P. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,530.00 $3,375 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $4,370.00 $3,375
S-20 4512 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 4513 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $8,500,000 less approximately $976,685 of deferred maintenance and investment not considered by the appraiser. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your S-22 4514 units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the S-23 4515 fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2020 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. S-24 4516 POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $4,370 per year on the number of Preferred OP Units, or distributions of $3,530.00 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $3,375 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 4517 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-26 4518 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.992% interest, consisting of no limited partnership interests and a 0.992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 4519 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 4520 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $50,000 for the nine months ended September 30, 1997, to $223,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November 2002 and September 2020. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all S-29 4521 limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,375 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive S-30 4522 quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $4,370 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,375 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,530.00 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 4523 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your properties (Snowden Village I and Snowden Village II, respectively) location B (good) and B (good); and its condition B (good) and B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Both your properties' mortgage debt bears interest at 7.6% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your properties' net operating income in 1998 increased compared to 1997, we further revised the capitalization rate [downward by approximately 1.49% and 2.18%, respectively], resulting in a final capitalization rate of 8.41% and 8.27%, respectively. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by S-32 4524 us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Snowden Village I.......................... $378,000(1) 8.41% $4,500,000 Snowden Village II......................... 331,000(2) 8.27 3,900,000 ---------- Estimated Total Gross Property Value....... $8,100,000
- --------------- (1) The total net operating income is equal to total revenues of $913,415, less total expenses of $495,532 and recurring replacement costs of $39,600. (2) The total net operating income is equal to total revenues of $778,618, less total expenses of $411,076 and recurring replacement costs of $39,600. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,403,326. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. S-33 4525 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. SNOWDEN VILLAGE I Net operating income........................................ $ 378,000 Capitalization rate......................................... 8.41% ----------- SNOWDEN VILLAGE II Net operating income........................................ 331,000 Capitalization rate......................................... 8.27% ----------- Gross valuation of partnership property..................... $ 8,500,000 Plus: Cash and cash equivalents............................. 217,500 Plus: Other partnership assets, net of security deposits.... 254,939 Less: Mortgage debt, including accrued interest............. (5,285,272) Less: Accounts payable and accrued expenses................. (64,703) Less: Other liabilities..................................... (29,953) ----------- Partnership valuation before taxes and certain costs........ 3,592,511 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (976,685) Less: Closing costs......................................... (212,500) ----------- Estimated net valuation of your partnership................. 2,403,326 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 2,403,326 Total number of units............................. 44.0 ----------- Estimated valuation per unit................................ 54,621 =========== Cash consideration per unit................................. $ 54,621 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $54,621 by the $25 liquidation preference of each Preferred OP Unit to get Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $54,621 by a price of $38.69 to get 1,412.00 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,403,326 or .42% is the net valuation of your partnership. S-34 4526 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $50,000 for the nine months ended September 30, 1997 to $223,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 4527 11. The estimated unit value of $54,621, based on a total estimated value of your partnership's property of $8,500,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $4,370 per year on the number of Preferred OP Units, or distributions of $3,530.00 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $3,375. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 4528 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 4529 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2020, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 54,621 Partnership preferred units................................. 54,621(1) Partnership common units.................................... 54,621(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 54,621 Estimated going concern value............................. $ 21,981 Alternative going concern value........................... $ 33,771 Net book value (deficit).................................. $(70,583)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $5,000 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and S-38 4530 assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $21,981 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $70,582 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-39 4531 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $55,667 per unit, going concern value of $40,987 per unit and liquidation value of $50,814 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." [An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated.] For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $1,046, $(13,634) and $(3,807). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-40 4532 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SNOWDEN SNOWDEN VILLAGE I VILLAGE II --------- ---------- Total Revenues.............................................. $ 965,877 $ 819,926 Operating Expenses.......................................... (485,267) (398,966) Replacement Reserves -- Net................................. (68,970) (60,466) Debt Service................................................ (280,308) (262,993) Capital Expenditures........................................ (8,400) (4,100) --------- --------- Net Cash Flow..................................... $ 122,932 $ 93,401 ========= =========
S-41 4533 The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-42 4534 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rates ranging from 8.41% to 8.27%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $976,685. Stanger observed that your partnership liquidation value of $2,403,326 was divided by the total units outstanding of 44 to provide the liquidation value per unit of $54,621. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $709,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $35,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 8.91% to 8.77%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 10.75%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 44 to achieve management's estimate of going concern value of $21,981 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units of the partnership were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $54,621 per unit is equal to management's estimate of liquidation value, and reflects a substantial premium to management's estimate of going concern value of $21,981. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing with the third year following the closing of this transaction, preferred stock of AIMCO with a distribution equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted S-43 4535 that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO, Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, direct capitalization rates of 10.25% to 10.5%, transaction costs of 2.5% to 5.0%, growth rates of 3% and terminal capitalization rates ranging from 10.75% to 11.0%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the portfolio's estimated internal rate of return derived from the discounted cash flow analysis, 12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $55,667, $40,987, and $50,814 representing premiums (discounts) to the offer price of 1.9%, 25% and (7%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our S-44 4536 subsidiary), special limited partner and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such S-45 4537 transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Snowden Village Associates, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 73 limited partners of your partnership and a total of 44 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 21, 1985 for the purpose of owning an apartment property located in Fredericksburg, Virginia known as "Snowden Village Apartments I" and "Snowden Village Apartments II." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1970 and consists of 254 apartment units. Your partnership's property had an average occupancy rate of approximately 95.91% in 1998, 91.80% in 1997 and 91.80% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that Snowden Village I needs deferred maintenance of $652,782 primarily for window replacement, HVAC and gutters. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Budgeted renovations or improvements for 1999 total $976,685 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $494 $505 $522 $503 $479
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the Snowden Village I and Snowden Village II, respectively, are $49,863 and 38,786 of $4,298,500 and $3,343,600 of assessed valuation with a current yearly tax rate of 1.16% S-46 4538 and 1.16%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 1.1832% and 1.1832% of such improvements, respectively. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2020 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to [improve/remain strong] in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $554, respectively, at December 31, 1998, compared to 92% and $494, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future due to the continuous growth in areas surrounding Washington D.C. In addition, the general partner noted that it expects to spend approximately $976,685 for capital replacements and improvements at the property in 1999 to update and improve the property's pool, clubhouse, and landscaping. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such S-47 4539 a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,471,646 on Snowden Village Apartments I, payable to Marine Midland Bank and Bank of America, which bears interest at a rate of 7.60%. Such mortgage debt is due November 2002. There is also a mortgage note on Snowden Village Apartments II, the balance of which was $2,668,492, as of September 30, 1998. The note is payable to WMF Huntoon Page, bears interest at 7.50% and is due September 2020. Your partnership also has a second mortgage note outstanding of $89,397, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,745,000 of limited partnership units in 1985 for $62,386 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2020, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership S-48 4540 is not liable to your partnership or any limited partner for any acts or failures to do any act performed by it in the absence of its willful malfeasance or gross negligence. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for indemnification of the general partners by your partnership for any acts or omissions performed by them. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $62,386.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 0 0 0 0 1995................................... 0 0 0 0 1996................................... 1,125 500 0 12,375 1997................................... 0 500 0 0 1998................................... 3,375 1,500 0 37,125 ------ ------ -- ------- Total........................ $4,500 $2,500 $0 $49,500 ====== ====== == =======
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.992% interest in your partnership, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 4541 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $ 5,856 1995........................................................ 46,910 1996........................................................ 37,461 1997........................................................ 53,114 1998........................................................ 32,861
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- Not 1994........................................................ available 1995........................................................ $86,362 1996........................................................ 82,069 1997........................................................ 82,982 1998........................................................ 91,941
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 4542 SNOWDEN VILLAGE ASSOCIATES, L.P. SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Snowden Village Associates, L.P. taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
SNOWDEN VILLAGE ASSOCIATES, L.P. --------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- ------- --------- --------- ---------- ---------- SELECTED FINANCIAL INFORMATION Cash and Cash Equivalents.................... $ 380 $ 425 $ 368 $ 314 $ 233 $ 169 $ 147 Land and Building............................ 8,788 8,590 8,656 8,530 8,377 8,210 8,076 Accumulated Depreciation..................... (6,131) (5,909) (5,962) (5,740) (5,522) (5,073) (4,570) Other Assets................................. 362 384 369 358 366 355 336 --------- --------- ------- --------- --------- ---------- ---------- Total Assets......................... 3,399 3,490 3,431 3,462 3,454 3,661 3,989 ========= ========= ======= ========= ========= ========== ========== Notes Payable................................ 5,149 5,257 5,246 5,371 5,463 5,548 5,600 Other Liabilities............................ 156 186 165 94 105 93 126 --------- --------- ------- --------- --------- ---------- ---------- Total Liabilities.................... 5,305 5,443 5,411 5,465 5,568 5,641 5,726 --------- --------- ------- --------- --------- ---------- ---------- Partners' Deficit............................ (1,907) (1,953) (1,980) (2,003) (2,114) (1,980) (1,737) ========= ========= ======= ========= ========= ========== ==========
SNOWDEN VILLAGE ASSOCIATES, L.P. --------------------------------------------------------------------------------- FOR THE NINE MONTHS FOR THE YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- ------- --------- --------- ---------- ---------- Rental Revenue............................... $ 1,266 $ 1,060 $ 1,506 $ 1,538 $ 1,590 $ 1,534 $ 1,459 Other Income................................. 121 145 184 140 149 173 149 --------- --------- ------- --------- --------- ---------- ---------- Total Revenue........................ 1,387 1,205 1,690 1,678 1,739 1,707 1,608 --------- --------- ------- --------- --------- ---------- ---------- Operating Expenses........................... 567 571 863 720 824 639 781 General and Administrative................... 46 26 34 26 36 229 164 Depreciation................................. 169 169 222 217 449 512 507 Interest Expense............................. 311 321 458 466 474 481 451 Property Taxes............................... 71 68 89 89 90 89 88 --------- --------- ------- --------- --------- ---------- ---------- Total Expenses....................... 1,164 1,155 1,666 1,518 1,873 1,950 1,991 --------- --------- ------- --------- --------- ---------- ---------- Net Income (Loss) before extraordinary items...................................... 223 50 24 160 (134) (243) (383) Extraordinary items.......................... --------- --------- ------- --------- --------- ---------- ---------- Net Income (Loss).................... 223 50 24 160 (134) (243) (383) ========= ========= ======= ========= ========= ========== ========== Net Income per limited partnership unit...... 5,017.50 1,125.00 544.91 3,600.00 (3,015.00) (5,467.50) (8,617.50) ========= ========= ======= ========= ========= ========== ========== Distributions per limited partnership unit... 3,375.00 11.25 11.25 1,113.75 -- -- -- ========= ========= ======= ========= ========= ========== ==========
S-51 4543 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $223,000 for the nine months ended September 30, 1998, compared to $50,000 for the nine months ended September 30, 1997. The increase in net income of $173,000 was primarily the result of an increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $1,387,000 for the nine months ended September 30, 1998, compared to $1,205,000 for the nine months ended September 30, 1997, an increase of $182,000, or 15.1%. The increase in revenues is due primarily to an increase in occupancy to 96% for the nine months ended September 30, 1998 as compared to 92% for the nine months ended September 30, 1997. The decrease in Other Income of $24,000 was due primarily to lower lease cancellation fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $567,000 for the nine months ended September 30, 1998, compared to $571,000 for the nine months ended September 30, 1997, a decrease of $4,000 which is comparable to the prior year. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $46,000 for the nine months ended September 30, 1998, compared to $26,000 for the nine months ended September 29, 1997, an increase of $20,000, or 77%. This increase was primarily the result of increased partnership administration and asset management costs and an increase in reimbursements paid to the general partner. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $311,000 for the nine months ended September 30, 1998, compared to $321,000 for the nine months ended September 30, 1997, a decrease of $10,000, or 3.1%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $24,000 for the year ended December 31, 1997, compared to net income of $160,000 for the year ended December 31, 1996. The decrease in net income of $136,000 was S-52 4544 primarily the result of a decrease in rental revenues and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,690,000 for the year ended December 31, 1997, compared to $1,678,000 for the year ended December 31, 1996, an increase of $12,000, or 1%. This increase is due primarily to an increase in other income of $44,000, or 31% offset by a decrease in rental revenue of $32,000, or 2%. The increase in other income is due primarily to an increase in lease cancellation fees. The decrease in rental revenues is due to increased competition in the geographic area where the property is located. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $863,000 for the year ended December 31, 1997, compared to $720,000 for the year ended December 31, 1996, an increase of $143,000 or 19.86%. The increase is primarily due to increased maintenance costs of approximately $60,000 as the property incurred additional interior building improvements, grounds maintenance and exterior painting expenses during 1997, with no similar projects during 1996. Additionally during 1997 various other operating expenses increased accounting for the balance of the increase during 1997. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $34,000, an increase of $8,000 for the year ended December 31, 1997, compared to the prior year. This increase is due primarily to general increases in partnership administrative and management costs. DEPRECIATION EXPENSE Depreciation expense increased $5,000 (2.3%) to $222,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $458,000 for the year ended December 31, 1997, compared to $466,000 for the year ended December 31, 1996, a decrease of $8,000, or 1.1% This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized net income of $160,000 for the year ended December 31, 1996, compared to a net loss of $134,000 for the year ended December 31, 1995. The increase in net income of $294,000 was due primarily to a decrease in operating and depreciation expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,678,000 for the year ended December 31, 1996, compared to $1,739,000 for the year ended December 31, 1995, a decrease of $61,000, or 3.5%. This decrease is due primarily to a 2% decrease in occupancy, and a 3% decrease in average rental rates from 1995 to 1996. S-53 4545 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $720,000 for the year ended December 31, 1996, compared to $824,000 for the year ended December 31, 1995, a decrease of $104,000 or 12.62%. This decrease is primarily due to a reduction in maintenance expenses as compared to the prior year due to additional maintenance projects at the property in 1995 with no similar projects in 1996. DEPRECIATION EXPENSE Depreciation expense decreased $232,000, or 52% to $217,000 as part of the initial costs of the buildings and improvements became fully depreciated during 1995. INTEREST EXPENSE Interest expense totaled $466,000 for the year ended December 31, 1996, compared to $474,000 for the year ended December 31, 1995, a decrease of $8,000, or 1.7%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $380,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the combined outstanding balance on the mortgage indebtedness was $5,149,000. The three mortgages require total monthly payments of approximately $65,000. Two of the mortgages mature in November 2002 at which time a balloon payment of approximately $2,171,000 will be due. The third mortgage matures in September 2020 at which time a balloon payment of approximately $181,000 will be due. The note are collateralized by pledge of land and buildings with stated interest rates from 7.5% to 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 4546 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 44 units of your partnership (up to 11 units) for consideration per unit of (i) 2,185.00 Preferred OP Units, (ii) 1,412.00 Common OP Units, or (iii) $54,621 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below) although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 4547 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 4548 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 4549 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 4550 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 4551 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 4552 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 4553 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 4554 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 4555 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 4556 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 4557 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 4558 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 4559 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 4560 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 4561 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 4562 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 4563 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Available Cash Flow (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2020. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to The purpose of the AIMCO Operating purchase, hold, lease, manage and operate Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your part- partnership organized pursuant to the nership's agreement of limited partnership, Delaware Revised Uniform Limited Part- your partnership may perform all act nership Act (as amended from time to time, necessary or appropriate in connection or any successor to such statute) (the therewith and reasonably related thereto, "Delaware Limited Partnership Act"), including borrowing money and creating provided that such business is to be liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 4564 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling units for cash and notes to se- limited partners and to other persons, and lected persons who fulfill the requirements to admit such other persons as additional set forth in your partnership's agreement of limited partners, on terms and conditions limited partnership. The capital and for such capital contributions as may be contribution need not be equal for all established by the general partner in its limited partners and no action or consent is sole discretion. The net capital required in connection with the admission of contribution need not be equal for all OP any additional limited partners. Unitholders. No action or consent by the OP Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership specifies certain contracts to contribute funds or other assets to its be entered into with the general partner and subsidiaries or other persons in which it its affiliates and the compensa- has an equity investment,
S-73 4565 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tion to be paid under such contracts. In and such persons may borrow funds from the addition, the general partner may loan your AIMCO Operating Partnership, on terms and partnership such additional sums as the conditions established in the sole and general partner deems appropriate and absolute discretion of the general partner. necessary for the conduct of your To the extent consistent with the business partnership's business. Such loans by the purpose of the AIMCO Operating Partnership general partner or its affiliates will be and the permitted activities of the general upon such terms and for such maturities as partner, the AIMCO Operating Partnership may the general partner deems reasonable and, transfer assets to joint ventures, limited except in limited circumstances, will bear liability companies, partnerships, interest at a rate the greater of 2 1/2% corporations, business trusts or other over the base rate then being charged by business entities in which it is or thereby Third National Bank in Nashville, Nashville, becomes a participant upon such terms and Tennessee or the actual cost to such lender subject to such conditions consistent with to borrow such funds and the terms thereof, the AIMCO Operating Partnership Agreement as to security and other charges or fees, and applicable law as the general partner, will be at least as favorable to your in its sole and absolute discretion, partnership as those negotiated by believes to be advisable. Except as unaffiliated lenders on comparable loans for expressly permitted by the AIMCO Operating the same purpose in the same locale. Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in the ordinary contains no restrictions on borrowings, and course of business and in connection with the general partner has full power and certain loans specified in your authority to borrow money on behalf of the partnership's agreement of limited AIMCO Operating Partnership. The AIMCO partnership, which include loans secured by Operating Partnership has credit agreements your partnership's property. However, except that restrict, among other things, its for such loans specified in your ability to incur indebtedness. partnership's agreement of limited partnership, the limited partners owning 51% of the outstanding units must approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partner may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all limited partner at the Unitholder's own expense, to obtain a principal office of the general partner in current list of the name and last known Tennessee at all reasonable times. business, residence or mailing address of the general partner and each other OP Unitholder.
S-74 4566 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The management and control of your All management powers over the business and partnership and its business and affairs affairs of the AIMCO Operating Partnership rest exclusively with the general partner, are vested in AIMCO-GP, Inc., which is the which has all the rights and power which may general partner. No OP Unitholder has any be possessed by a general partner pursuant right to participate in or exercise control to applicable law or are necessary, or management power over the business and advisable or convenient to the discharge of affairs of the AIMCO Operating Partner- its duties under your partnership's ship. The OP Unitholders have the right to agreement of limited partnership. Limited vote on certain matters described under partners may not take part in or interfere "Comparison of Your Units and AIMCO OP with any with the conduct or control of the Units -- Voting Rights" below. The general business of your partnership and have no partner may not be removed by the OP right or authority to act for or bind your Unitholders with or without cause. partnership in any manner, except that limited partners may exercise the voting and In addition to the powers granted a general other rights provided in your partnership's partner of a limited partnership under agreement of limited partnership and under applicable law or that are granted to the applicable law. general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts or failures to do any act performed by losses sustained, liabilities incurred or it in the absence of its willful malfeasance benefits not derived as a result of errors or gross negligence. Your partnership's in judgment or mistakes of fact or law of agreement of limited partnership does not any act or omission if the general partner provide for indemnification of the general acted in good faith. The AIMCO Operating partner by your partnership for any acts or Partnership Agreement provides for omissions performed by it. indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous
S-75 4567 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause after the business and affairs of the AIMCO giving notice to such general partner upon a Operating Partnership. The general partner vote of the limited partners owning at least may not be removed as general partner of the 67% of the outstanding units. A general AIMCO Operating Partnership by the OP partner may resign with the approval of the Unitholders with or without cause. Under the limited partners owning at least 67% of the AIMCO Operating Partnership Agreement, the outstanding units upon the giving of notice general partner may, in its sole discretion, to any remaining general partner and the prevent a transferee of an OP Unit from limited partners. All the limited partners becoming a substituted limited partner must approve the election of a substitute pursuant to the AIMCO Operating Partnership general partner. A limited partner may not Agreement. The general partner may exercise transfer his interests without the written this right of approval to deter, delay or consent of the general partner which may be hamper attempts by persons to acquire a withheld at the sole discretion of the controlling interest in the AIMCO Operating general partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
S-76 4568 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add representations, duties or Agreement, whereby the general partner may, obligations of the general partner or without the consent of the OP Unitholders, affiliates or surrender any right or power amend the AIMCO Operating Partnership granted to the general partner or its Agreement, amendments to the AIMCO Operating affiliates in your partnership's agreement Partnership Agreement require the consent of of limited partnership for the benefit of the holders of a majority of the outstanding the limited partners, to cure any ambiguity, Common OP Units, excluding AIMCO and certain to correct or supplement any provision which other limited exclusions (a "Majority in may be inconsistent with any other provision Interest"). Amendments to the AIMCO provided that the general partner receives Operating Partnership Agreement may be an opinion of counsel that such amendment proposed by the general partner or by does not adversely affect the rights of the holders of a Majority in Interest. Following limited partners and to admit additional or such proposal, the general partner will substituted limited partners. Any other submit any proposed amendment to the OP amendments to your partnership's agreement Unitholders. The general partner will seek of limited partnership must be approved by the written consent of the OP Unitholders on the limited partners owning 67% of the the proposed amendment or will call a units. The general partner must submit a meeting to vote thereon. See "Description of written statement of the proposed amendment OP Units -- Amendment of the AIMCO Operating together with its recommendation as to such Partnership Agreement" in the accompanying proposed amendment. For the purposes of ob- Prospectus. taining the consent of the limited partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner. Moreover, the general partner or Operating Partnership. In addition, the certain affiliates may be entitled to AIMCO Operating Partnership is responsible compensation for additional services for all expenses incurred relating to the rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, except as provided gross negligence, no OP Unitholder has under applicable law, a limited partner is personal liability for the AIMCO Operating not bound by or personally liable for the Partnership's debts and obligations, and expenses, liabilities or obligations of your liability of the OP Unitholders for the partnership in excess of such limited AIMCO Operating Partnership's debts and partner's capital contribution, including obligations is generally limited to the deferred payment to be made amount of their
S-77 4569 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP by such limited partner for its units, and investment in the AIMCO Operating any mandatory assessments provided for in Partnership. However, the limitations on the your partnership's agreement of limited liability of limited partners for the partnership which may be levied against obligations of a limited partnership have those limited partners who do not pay for not been clearly established in some states. issued units entirely in cash. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties In general, your partnership's agreement of Unless otherwise provided for in the limited partnership and the AIMCO Operating relevant partnership agreement, Delaware law Partnership Agreement have limitations on generally requires a general partner of a the liability of the general partner but Delaware limited partnership to adhere to such limitations differ in terms and provide fiduciary duty standards under which it owes more protection for the general partner of its limited partners the highest duties of the AIMCO Operating Partnership. good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The AIMCO Operating Partnership Agreement expressly authorizes the general partner to enter into, on behalf of the AIMCO Operating Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of the AIMCO Operating Partnership and the general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The AIMCO Operating Partnership Agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors will not be liable or accountable in damages to the AIMCO Operating Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
S-78 4570 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-79 4571 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the vote of the AIMCO Operating Partnership OP Unitholders have voting limited partners owning 51% Agreement, the holders of rights only with respect to of the outstanding units is the Preferred OP Units will certain limited matters such necessary to change the have the same voting rights as certain amendments and nature of your partnership's as holders of the Common OP termination of the AIMCO business and approve or Units. See "Description of Operating Partnership disapprove the sale of all OP Units" in the accompany- Agreement and certain or substantially all of the ing Prospectus. So long as transactions such as the assets of your partnership. any Preferred OP Units are institution of bankruptcy The consent of the holders outstanding, in addition to proceedings, an assignment of at least 67% of the any other vote or consent of for the benefit of creditors outstanding units is re- partners required by law or and certain transfers by the quired to remove a general by the AIMCO Operating general partner of its partner, amend your Partnership Agreement, the interest in the AIMCO partnership's agreement of affirmative vote or consent Operating Partnership or the limited partnership and to of holders of at least 50% admission of a successor dissolve your partnership of the outstanding Preferred general partner. before its term expires. All OP Units will be necessary limited partners must for effecting any amendment Under the AIMCO Operating approve the election of a of any of the provisions of Partnership Agreement, the substitute general partner. the Partnership Unit general partner has the Designation of the Preferred power to effect the In general, you have greater OP Units that materially and acquisition, sale, transfer, voting rights in your adversely affects the rights exchange or other partnership than you will or preferences of the disposition of any assets of have as an OP Unitholder. OP holders of the Preferred OP the AIMCO Operating Unitholders cannot remove Units. The creation or Partnership (including, but the general partner of the issuance of any class or not limited to, the exercise AIMCO Operating Partnership. series or grant of any conversion, option,
S-80 4572 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS of partnership units, privilege or subscription including, without right or any other right limitation, any partner- available in connection with ship units that may have any assets at any time held rights senior or superior to by the AIMCO Operating the Preferred OP Units, Partnership) or the merger, shall not be deemed to consolidation, materially adversely affect reorganization or other the rights or preferences of combination of the AIMCO the holders of Preferred OP Operating Partnership with Units. With respect to the or into another entity, all exercise of the above without the consent of the described voting rights, OP Unitholders. each Preferred OP Units shall have one (1) vote per The general partner may Preferred OP Unit. cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operation, sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly tributions of the Available at the rate of $0.50 per Cash Preferred
S-81 4573 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Flow will be made in OP Unit; provided, however, all, or such portion as the semiannual installments that at any time and from general partner may in its within 45 days after such time to time on or after the sole and absolute discretion period or at such time or fifth anniversary of the determine, of Available Cash times as the general partner issue date of the Preferred (as defined in the AIMCO deems practical. The OP Units, the AIMCO Operat- Operating Partnership distributions payable to the ing Partnership may adjust Agreement) generated by the partners are not fixed in the annual distribution rate AIMCO Operating Partnership amount and depend upon the on the Preferred OP Units to during such quarter to the operating results and net the lower of (i) 2.00% plus general partner, the special sales or refinancing the annual interest rate limited partner and the proceeds available from the then applicable to U.S. holders of Common OP Units disposition of your Treasury notes with a on the record date es- partnership's assets. maturity of five years, and tablished by the general (ii) the annual dividend partner with respect to such rate on the most recently quarter, in accordance with issued AIMCO non-convertible their respective interests preferred stock which ranks in the AIMCO Operating on a parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the cash or other property may be declared or made, directly
S-82 4574 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS or indirectly, by the AIMCO Code and the Treasury Operating Partnership with Regulations and (ii) avoid respect to any Junior Units any Federal income or excise (as defined below), nor tax liability of AIMCO. See shall any Junior Units be "Description of OP redeemed, purchased or Units -- Distributions" in otherwise acquired for the accompanying Prospectus. consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such transferee and the Preferred OP Units Operating Partnership will become a substituted are not listed on any Agreement restricts the limited partner if: (1) the securities exchange. The transferability of the OP transfer is not in respect Preferred OP Units are Units. Until the expiration of fractional units, except subject to restrictions on of one year from the date on in limited circumstances, transfer as set forth in the which an OP Unitholder (2) the assignor and AIMCO Operating Partnership acquired OP Units, subject assignee execute, Agreement. to certain exceptions, such acknowledge and deliver OP Unitholder may not instruments of transfer Pursuant to the AIMCO transfer all or any por- satisfactory to the general Operating Partnership tion of its OP Units to any partners, (3) the transferor Agreement, until the transferee without the pays the transfer fee, (4) expiration of one year from consent of the general the general partner the date on which a holder partner, which consent may consents, which consent will of Preferred OP Units be withheld in its sole and be withheld if, among other acquired Preferred OP Units, absolute discretion. After reasons, (5) the transfer subject to certain the expiration of one year, violates Federal or state exceptions, such holder of such OP Unitholder has the securities laws or results Preferred OP Units may not right to transfer all or any in the termination of your transfer all or any portion portion of its OP Units to partnership for tax purposes of its Preferred OP Units to any person, subject to the and (6) the assignor and any transferee without the satisfaction of certain con- assignee have complied with consent of the general ditions specified in the such other conditions as set partner, which consent may AIMCO Operating Partnership forth in your partnership's be withheld in its sole and Agreement, including the agreement of limited absolute discretion. After general partner's right of partnership. the expiration of one year, first refusal. See such holders of Preferred OP "Description of OP Units -- There are no redemption Units has the right to Transfers and Withdrawals" rights associated with your transfer all or any portion in the accompanying units. of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred to redeem all or a
S-83 4575 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Units and receive in portion of the Common OP exchange therefor, at the Units held by such party in AIMCO Operating exchange for a cash amount Partnership's option, (i) based on the value of shares subject to the terms of any of Class A Common Stock. See Senior Units (as defined "Description of OP below), cash in an amount Units -- Redemption Rights" equal to the Liquidation in the accompanying Preference of the Preferred Prospectus. Upon receipt of OP Units tendered for a notice of redemption, the redemption, (ii) a number of AIMCO Operating Partnership shares of Class A Common may, in its sole and Stock of AIMCO that is equal absolute discretion but in Value to the Liquidation subject to the restrictions Preference of the Preferred on the ownership of Class A OP Units tendered for Common Stock imposed under redemption, or (iii) for AIMCO's charter and the Preferred OP Units redeemed transfer restrictions and after a two-year holding other limitations thereof, period, a number of shares elect to cause AIMCO to of Class I Preferred Stock acquire some or all of the of AIMCO that pay an tendered Common OP Units in aggregate amount of exchange for Class A Common dividends equivalent to the Stock, based on an exchange distributions on the ratio of one share of Class Preferred OP Units tendered A Common Stock for each Com- for redemption; provided mon OP Unit, subject to that such shares are part of adjustment as provided in a class or series of the AIMCO Operating preferred stock that is then Partnership Agreement. listed on the NYSE or an- other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 4576 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 4577 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 4578 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 4579 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 4580 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 4581 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 4582 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 4583 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-92 4584 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 4585 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $37,461 in 1996, $53,114 in 1997 and $32,861 in 1998. The property manager received management fees of $82,069 in 1996, $82,982 in 1997 and $91,941 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 4586 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $442,585 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $12,000 Other....................................................... $ 8,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 4587 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Snowden Village Associates, L.P. at December 31, 1997, and for the year then ended, as set forth in their report. We've included the financial statements of Snowden Village Associates, L.P. in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-96 4588 SNOWDEN VILLAGE ASSOCIATES, L. P. INDEX FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note A -- Basis of Presentation (unaudited)................. F-4 Independent Auditors' Report................................ F-5 Balance Sheet as of December 31, 1997....................... F-6 Statement of Operations for the year ended December 31, 1997...................................................... F-7 Statement of Partners' Deficit for the year ended December 31, 1997.................................................. F-8 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-9 Notes to Financial Statements............................... F-10 Balance Sheet as of December 31, 1996 (Unaudited)........... F-15 Statement of Operations for the year ended December 31, 1996 (Unaudited)............................................... F-16 Statement of Partners' Deficit for the year ended December 31, 1996 (Unaudited)...................................... F-17 Statement of Cash Flows for the year ended December 31, 1996 (Unaudited)............................................... F-18 Notes to Financial Statements (Unaudited)................... F-19
F-1 4589 SNOWDEN VILLAGE ASSOCIATES, LP CONDENSED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 379,976 Receivables, deposits and other assets...................... 361,841 Investment property Land...................................................... $ 465,000 Building and related personal property.................... 8,322,574 ----------- 8,787,574 Less: Accumulated depreciation............................ (6,130,789) 2,656,785 ----------- ----------- Total assets...................................... $ 3,398,602 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable and other liabilities...................... $ 155,843 Notes payable............................................... 5,149,562 Partners' deficit........................................... (1,906,803) ----------- Total liabilities and partners' deficit........... $ 3,398,602 ----------- -----------
See accompanying note F-2 4590 SNOWDEN VILLAGE ASSOCIATES, L.P. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,265,928 $1,059,734 Other income.............................................. 121,070 145,675 ---------- ---------- Total revenues.................................... 1,386,998 1,205,409 Expenses: Operating expenses........................................ 567,348 570,863 General and administrative expenses....................... 45,991 25,916 Depreciation expense...................................... 168,934 168,934 Interest expense.......................................... 311,164 321,246 Property tax expense...................................... 70,722 67,960 ---------- ---------- Total expenses.................................... 1,164,159 1,154,919 ---------- ---------- Net income........................................ $ 222,839 $ 50,490 ========== ==========
See accompanying note F-3 4591 SNOWDEN VILLAGE ASSOCIATES, L.P. CONDENSED STATEMENTS OF CASH FLOWS --(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 --------- -------- Operating Activities: Net income................................................ $ 222,839 $ 50,490 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization.......................... 168,934 168,934 Changes in accounts: Receivables and deposits and other assets............ 22,692 (53,341) Accounts payable and accrued expenses................ (8,492) 66,017 --------- -------- Net cash provided by operating activities......... 405,973 232,100 --------- -------- Investing Activities: Property improvements and replacements.................... (131,635) (59,982) Net increase in restricted escrows........................ (15,522) (15,267) --------- -------- Net cash used in investing activities............. (147,157) (75,249) --------- -------- Financing Activities: Payments on mortgage...................................... (96,339) (87,686) Partners' Distributions................................... (150,000) (500) --------- -------- Net cash used in financing activities............. (246,339) (88,186) --------- -------- Net increase in cash and cash equivalents......... 12,477 68,665 Cash and cash equivalents at beginning of year............ 367,499 356,261 --------- -------- Cash and cash equivalents at end of period................ $ 379,976 $424,926 ========= ========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Snowden Village Associates as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 4592 REPORT OF INDEPENDENT AUDITORS The Partners Snowden Village Associates, L. P. We have audited the accompanying balance sheet of Snowden Village Associates, L. P. as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Snowden Village Associates, L. P. at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP -------------------------------------- September 1, 1998 Greenville, South Carolina F-5 4593 SNOWDEN VILLAGE ASSOCIATES, L. P. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 368 Receivables and deposits.................................... 90 Restricted escrows.......................................... 193 Deferred charges, net of amortization of $93................ 65 Other assets................................................ 21 Apartment property, at cost (Notes A and B): Land...................................................... $ 465 Building and improvements................................. 8,191 ------- 8,656 Less accumulated depreciation............................. (5,962) 2,694 ------- ------ $3,431 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities Accounts payable.......................................... $ 42 Tenant security deposits payable.......................... 59 Accrued property taxes.................................... 19 Accrued interest payable.................................. 26 Other liabilities......................................... 19 Mortgage note payable (Notes B and C)..................... 5,246 ------ 5,411 Partners' deficit: General partners.......................................... $ (58) Limited partners (44 units issued and outstanding)........ (1,922) (1,980) ------- ------ $3,431 ======
See accompanying notes. F-6 4594 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Apartment rentals......................................... $ 1,506 Other income.............................................. 184 1,690 Expenses: Operating................................................. $863 General and Administrative................................ 34 Depreciation.............................................. 222 Interest (Note C)......................................... 458 Property taxes............................................ 89 1,666 ---- ------- Net income.................................................. $ 24 ======= Net income allocated to General Partners (1%)............... $ 1 Net income allocated to Limited Partners (99%).............. 23 ------- $ 24 ======= Net income per limited partnership unit..................... $544.91 =======
See accompanying notes. F-7 4595 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNER TOTAL ------- ------- ------- Deficit at December 31, 1996................................ $(58) $(1,945) $(2,003) Distributions............................................. (1) 0 (1) Net income................................................ 1 23 24 ---- ------- ------- Deficit at December 31, 1997................................ $(58) $(1,922) $(1,980) ==== ======= =======
See accompanying notes. F-8 4596 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 24 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 222 Amortization........................................... 35 Changes in assets and liabilities: Receivables and deposits............................. (18) Other assets......................................... 10 Accounts payable..................................... 18 Security deposits payable............................ 18 Other liabilities.................................... 9 ----- Net cash provided by operating activities................. 318 Cash flows from investing activities Property improvements and replacements.................... (125) Change in reserve escrows................................. (20) ----- Net cash used in investing activities..................... (145) Cash flows from financing activities Principal payments on mortgage note payable............... (118) Distributions to Partners................................. (1) ----- Net cash used in financing activities..................... (119) ----- Increase in cash and cash equivalents..................... 54 Cash and cash equivalents at December 31, 1996............ 314 ----- Cash and cash equivalents at December 31, 1997............ $ 368 ===== Supplemental disclosure of cash flow information Cash paid for interest.............................................. $ 411 =====
See accompanying notes. F-9 4597 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Organization Snowden Village Associates, L. P. (the "Partnership") is a Delaware limited partnership which began operations in 1985 with the purchase of property and improvements in Fredericksburg, Virginia, presently operating as two apartment complexes. The two projects consist of Phase I, a conventional apartment complex, and Phase II, a complex regulated under Section 221(d)4 of the National Housing Act. The general partners of the Partnership are Jacques Miller Associates and Jacques Miller, Inc. (collectively, the "General Partners"). Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks/Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits Tenant security deposits required from lessees for the duration of the lease as required by the Partnership are included in receivables and deposits. These deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. F-10 4598 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs of approximately $63,000, net of accumulated amortization of approximately $64,000, are being amortized on a straight-line basis over the life of the loan. Unamortized loan costs are included in deferred charges. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs Advertising costs of approximately $34,000 in 1997 were charged to expense as incurred and are included in operating expenses. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 4 to 25 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $193,000. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Snowden Village Phase I.......................... $2,643 $242 $3,093 $622 Snowden Village Phase II......................... 5,359 223 4,116 360 ------ ---- ------ ---- Totals........................................... $8,002 $465 $7,209 $982 ====== ==== ====== ====
F-11 4599 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ---- ----------- ------ ------------ -------- ------------- Snowden Village Phase I............................. $242 $3,715 $3,957 $2,710 1985 4-25 Snowden Village Phase II............................ 223 4,476 4,699 3,252 1985 5-25 ---- ------ ------ ------ Totals.............................................. $465 $8,191 $8,656 $5,962 ==== ====== ====== ======
Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year............ $8,530 Property improvements..................................... 126 ------ Balance at end of year.................................... $8,656 ====== Accumulated Depreciation Balance at beginning of year....... $5,740 Additions charged to expense.............................. 222 ------ Balance at end of year.................................... $5,962 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $8,669,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $5,726,000. NOTE C -- MORTGAGE NOTES PAYABLE The principal terms of the mortgage note payable are as follows (in thousands):
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, PROPERTY INTEREST RATE DATE AT MATURITY 1997 -------- --------- -------- -------- ----------- ------------ Snowden Village I 1st mortgage........................... $23 7.60% 11/1/02 $2,082 $2,554 2nd mortgage*.......................... 1 7.60% 11/1/02 89 89 --- ------ 24 2,643 Snowden Village II....................... $21 7.50% 9/1/20 $ 181 2,716 ------ 5,359 Less unamortized present value discounts at 8.76%............................... 113 ------ $5,246 ======
- --------------- * Interest-only payments The mortgages encumbering Snowden Village I and Snowden Village II are non-recourse and are collateralized by the property and improvements of the Partnership. The mortgages require prepayment penalties if repaid prior to maturity. In addition, the mortgage encumbering Snowden Village II is insured by HUD. F-12 4600 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership exercised interest rate buy-downs when one of its mortgages was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $207,221 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows (in thousands): 1998....................................................... $ 130 1999....................................................... 140 2000....................................................... 151 2001....................................................... 162 2002....................................................... 2,337 Thereafter................................................. 2,439 ------ $5,359 ======
NOTE D -- RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partners and affiliates of Insignia Financial Group, Inc. ("Insignia") for the management and administration of all of the Partnership activities, as provided in the Partnership Agreement. Affiliates of Insignia have ownership interests in the General Partners, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions occurred with the General Partners and affiliates during the year (in thousands): Management fee.............................................. $83 Bookkeeper fee.............................................. 8 Partnership administration fee.............................. 15 Reimbursement for services of affiliates.................... 30 Construction oversight reimbursements....................... 4
On September 6, 1997, an affiliate of the General Partners purchased Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are secured by 55 multi-family apartment mortgage loan pairs held in Trust, including Snowden Village Phase I owned by the Partnership. For the period January 1, 1996 to August 31, 1997 the Partnership insured its property under a master policy through an agency and insurer unaffiliated with Insignia. An affiliate of Insignia acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of Insignia who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of Insignia by virtue of the agent's obligations is not significant. Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. F-13 4601 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ 24 Add (deduct): Depreciation differences.................................. (159) Unearned income........................................... 4 Accruals and prepaids..................................... (2) Mortgage discount......................................... (1) ---------- Federal taxable loss........................................ $ (134) ========== Federal taxable loss per limited partnership unit........... $(3,054.20) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $(1,980) Land and buildings.......................................... 13 Accumulated depreciation.................................... 236 Investment in lower tier partnerships....................... (1,000) Other....................................................... (19) ------- Net liabilities -- tax basis................................ $(2,750) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 4602 SNOWDEN VILLAGE ASSOCIATES, L. P. BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 ASSETS Cash: Unrestricted.............................................. $ 314,555 Restricted -- tenant security deposits.................... 41,706 $ 356,261 ----------- Taxes and insurance escrow.................................. 30,416 Reserve escrows (Note 1).................................... 173,216 Deferred charges, net of accumulated amortization of $77,033................................................... 80,456 Other assets................................................ 30,948 Investment properties, at cost (Notes 1 and 2): Land...................................................... 465,000 Buildings and related personal property................... 8,065,275 ----------- 8,530,275 Less accumulated depreciation............................. (5,739,703) 2,790,572 ----------- ----------- $ 3,461,869 =========== LIABILITIES AND PARTNERSHIP DEFICIT Liabilities: Accounts payable.......................................... $ 29,840 Accrued interest -- mortgage payable...................... 26,293 Accrued taxes............................................. 19,393 Security deposits and other tenant liabilities............ 45,100 Mortgage notes payable (Note 2)........................... 5,344,360 ----------- 5,464,986 Partners' deficit........................................... (2,003,117) ----------- $ 3,461,869 ===========
F-15 4603 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $1,538,427 Other apartment income.................................... 127,752 Interest income........................................... 12,118 ---------- 1,678,297 Expenses: Administrative............................................ $242,920 Operating................................................. 169,564 Maintenance............................................... 166,367 Property management fee (Note 3).......................... 82,069 Partnership administration fee (Note 3)................... 31,605 Depreciation.............................................. 217,337 Amortization.............................................. 35,195 Interest.................................................. 431,041 Property taxes............................................ 88,886 Insurance................................................. 53,192 1,518,176 -------- ---------- Net income.................................................. $ 160,121 ==========
F-16 4604 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF PARTNERS' DEFICIT (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Partners' deficit at December 31, 1995...................... $(2,113,738) Distributions............................................. (49,500) Net income................................................ 160,121 ----------- Partners' deficit at December 31, 1996...................... $(2,003,117) ===========
F-17 4605 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Operating activities Net income................................................ $ 160,121 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 252,532 Changes in assets and liabilities: Restricted cash...................................... 4,745 Accounts payable..................................... 2,497 Other assets......................................... (11,196) Security deposits and other tenant liabilities....... (12,659) Accrued interest -- mortgage......................... (255) Change in tax and insurance escrow................... 2,326 --------- Net cash provided by operating activities......... 398,111 Investing activities Property improvements and replacements.................... (153,204) Change in reserve escrows................................. (2,696) --------- Net cash (used) for investing activities.......... (155,900) Financing activities Payment on mortgage notes payable......................... (111,529) Distributions............................................. (49,500) --------- Net cash (used) for financing activities.......... (161,029) --------- Increase in cash............................................ 81,182 Cash at December 31, 1995................................... 233,373 --------- Cash at December 31, 1996................................... $ 314,555 =========
F-18 4606 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Snowden Village Associates, L. P. is a Delaware limited partnership which began operations in 1985 with the purchase of property and improvements in Fredericksburg, Virginia, presently operating as two apartment complexes. The two projects consist of Phase I, a conventional apartment complex, and Phase II, a complex regulated under Section 221(d)4 of the National Housing Act. The regulatory agreement for Phase II limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Property and improvements are recorded at the Partnership's acquisition cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over estimated service lives, using the straight-line method. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partner. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. Management Agreements The Projects pay management fees equal to 5 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet for cash and reserve escrows approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgages at the end of their terms. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Restricted Escrows -- Reserve Accounts A General Reserve Account was established for one of the apartment complexes to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the property to the reserve account until the reserve account equals $1,000 per apartment unit or $132,000 in total. F-19 4607 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) The Partnership has also established a reserve for replacements in accordance with the provisions of a regulatory agreement. The restricted cash is held in a separate bank account to be used for replacements with the approval of HUD. At December 31, 1996, there was $133,861 in the General Reserve Account and $39,355 in the Reserve for Replacements, totaling $173,216. Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized on an interest method over the life of the related debt. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $126,557 were incurred which are being amortized on a straight-line basis over the life of the loans. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indictors of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1996 -------- --------- -------- -------- ---------- ------------ Snowden Village Phase II........ $20,793 7.5% 9/1/20 $ 181,355 $2,758,400 Snowden Village Phase I: 1st mortgage.................. 22,793 7.6% 11/15/02 2,082,239 2,630,137 2nd mortgage.................. 566 7.6% 11/15/02 89,317 89,317 ------- ---------- $23,359 2,719,454 ======= ---------- 5,477,854 Less unamortized present value discounts at 8.76%............ 133,494 ---------- $5,344,360 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. F-20 4608 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) During the year, net interest costs incurred were $418,041 and interest paid was $418,296. The Partnership exercised interest rate buy-downs when one of its mortgages was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $207,221 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows: 1997.................................................... $ 119,989 1998.................................................... 129,371 1999.................................................... 139,836 2000.................................................... 150,786 2001.................................................... 162,595 Thereafter.............................................. 4,775,277 ---------- $5,477,854 ==========
3. RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The following transactions occurred with the General Partner and its affiliates during the year: Management fee............................................ $82,069 Bookkeeper fee............................................ 5,856 Partnership administration fee............................ 31,605
F-21 4609 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 4610 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 4611 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 4612 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4613 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4614 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 4615 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 4616 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4617 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4618 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4619 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 4620 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 4621 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 4622 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 4623 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4624 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4625 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4626 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4627 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4628 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4629 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4630 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4631 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4632 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4633 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4634 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4635 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4636
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4637 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4638
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4639 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 4640 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 4641 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 4642
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 4643 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 4644 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 4645 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 4646
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 4647 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 4648 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 4649 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 4650 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 4651 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 4652 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 4653 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 4654 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 4655 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 4656 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 4657 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 4658 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 4659 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: SNOWDEN VILLAGE ASSOCIATION LP Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of SNOWDEN VILLAGE ASSOCIATION LP (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $54,621 in cash, or 1,412.00 Common OP Units of the Purchaser, or 2,185 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 4660 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided to the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 4661 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 4662 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 4663
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 4664
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 4665
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 4666
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4667 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 4668 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Sturbrook Investors, Ltd. in exchange for your choice of: 1,944.50 of our 8.0% Class Two Partnership Preferred Units; 1,256.50 of our Partnership Common Units; or $48,611 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $48,611 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Although your partnership's agreement of limited partnership provides for termination in the year 2031, the private placement memorandum pursuant to which the units were sold in 1982 indicated that the property owned by your partnership might be sold within three to seven years of its acquisition if conditions permitted. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 4669 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-8 Fairness of the Offer........................ S-9 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-11 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-14 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Sturbrook Investors, Ltd............................. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Lower Distributions............... S-25 Uncertain Terms of Preferred Stock......... S-25 Redemption Price of Preferred OP Units..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-41 Experience of Stanger........................ S-41 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-45 Assumptions, Limitations and Qualifications............................. S-45 Compensation and Material Relationships...... S-46 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-47 Investment Objectives and Policies; Sale or Financing of Investments................... S-47 Capital Replacement.......................... S-48 Borrowing Policies........................... S-48 Competition.................................. S-49 Legal Proceedings............................ S-49 History of the Partnership................... S-49 Fiduciary Responsibility of the General Partner of Your Partnership................ S-49 Distributions and Transfers of Units......... S-50 Beneficial Ownership of Interests in Your Partnership................................ S-50 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-53 THE OFFER...................................... S-56 Terms of the Offer; Expiration Date.......... S-56 Acceptance for Payment and Payment for Units...................................... S-56 Procedure for Tendering Units................ S-57 Withdrawal Rights............................ S-60
i 4670
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-60 Proration.................................... S-61 Fractional OP Units.......................... S-61 Future Plans of the AIMCO Operating Partnership................................ S-61 Voting by the AIMCO Operating Partnership.... S-62 Dissenters' Rights........................... S-62 Conditions of the Offer...................... S-62 Effects of the Offer......................... S-65 Certain Legal Matters........................ S-65 Fees and Expenses............................ S-67 Accounting Treatment......................... S-67 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-68 Tax Consequences of Exchanging Units Solely for OP Units............................... S-68 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-69 Tax Consequences of Exchanging Units Solely for Cash................................... S-69 Disguised Sale Treatment..................... S-69 Adjusted Tax Basis........................... S-70 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-70 Passive Activity Losses...................... S-70 Tax Reporting................................ S-71 Foreign Offerees............................. S-71 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-71 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-73 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-80 DESCRIPTION OF PREFERRED OP UNITS.............. S-86 General...................................... S-86 Ranking...................................... S-86
PAGE ----- Distributions................................ S-86 Allocation................................... S-87 Liquidation Preference....................... S-87 Redemption................................... S-88 Voting Rights................................ S-88 Restrictions on Transfer..................... S-89 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-89 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-91 CONFLICTS OF INTEREST.......................... S-95 Conflicts of Interest with Respect to the Offer...................................... S-95 Conflicts of Interest that Currently Exist for Your Partnership....................... S-95 Competition Among Properties................. S-95 Features Discouraging Potential Takeovers.... S-95 Future Exchange Offers....................... S-95 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-96 LEGAL MATTERS.................................. S-97 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4671 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Sturbrook Investors, Inc., and the company that manages property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $7,300,000, less approximately $1,612,285 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 4672 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 4673 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2031 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 4674 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 4675 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated January 1, 1982, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within three to seven years of their acquisition, provided market conditions permit. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2031. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,256,304 and $139,037 of balloon payments due on its mortgage debts in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 4676 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002, and require balloon payments of $3,256,304 and $139,037. In December 1997, both first and second mortgages were discounted by $156,000 in the aggregate. The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of debt to 8.76%. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership S-6 4677 interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,889.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,141.25 year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. S-7 4678 Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the property may be sold in approximately three to seven years from the date of acquisition, such property was not so sold. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.01%, resulting in a S-8 4679 final capitalization rate of 9.34%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 682,000 Capitalization rate......................................... 9.34% ----------- Gross valuation of partnership properties................... 7,300,000 Plus: Cash and cash equivalents............................. 102,420 Plus: Other partnership assets, net of security deposits.... 246,092 Less: Mortgage debt, including accrued interest............. (3,972,381) Less: Accounts payable and accrued expenses................. (33,101) Less: Other liabilities..................................... (49,636) ----------- Partnership valuation before taxes and certain costs........ 3,593,394 Less: Disposition fees...................................... 0 Less: Disposition fees -- Shearson.......................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (1,612,285) Less: Closing costs......................................... (182,500) ----------- Estimates net valuation of your partnership................. 1,798,609 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 1,798,609 Total number of units............................. 37.0 ----------- Estimated valuation per unit................................ 48,611 =========== Cash consideration per unit................................. 48,611 ===========
- --------------- (1) See "Valuation of Units" for a determination of the estimated gross valuation for the property and a more detailed explanation of the calculation of the offer price. In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $48,611 by the $25 liquidation preference of each Preferred OP Unit to get 1,944.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $48,611 by a price of $38.69 to get 1,256.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. [RIDER CAP. RATE S-9C MISSING] FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general S-9 4680 partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT ----------- Cash offer consideration.................................... $ 48,611 Partnership Preferred Units................................. $ 48,611 Partnership Common Units.................................... $ 48,611 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 48,611 Estimated going concern value............................. $ 42,921 Alternative going concern value(1)........................ 39,088 Net book value (deficit).................................. $ (56,885)
- --------------- (1) Assumes sale of the properties when balloon payments are due instead of refinancing the mortgages. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO S-10 4681 Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Sturbrook Investors, Ltd. is a California limited partnership which was formed on October 15, 1981 for the purpose of owning and operating a single apartment property located in Richmond, Virginia, known as "Sunrise V." Sunrise V consists of 229 units and was built in 1972. Your partnership has no employees. As of September 30, 1998, there were 37 units of limited partnership interest issued and outstanding, which were held of record by 36 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $2,624,800 of limited partnership units in 1982. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2031, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,256,304, payable to Marine Midland Bank and Bank of America, which bears interest at the rate of 7.6%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $139,037, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,944.50 of our Class Two Partnership Preferred Units; - 1,256.50 of our Partnership Common Units; or - $48,611 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. S-11 4682 We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 37 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,944.50 Preferred OP Units, 1,256.50 Common OP Units, or $48,611 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and S-12 4683 - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. S-13 4684 CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $48,611 in cash, 1,944.50 Preferred OP Units or 1,256.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $48,611. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. S-14 4685 Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $13,045 for the fiscal year ended December 31, 1998. The property manager received management fees of $78,953 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $376,531 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 4686 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 4687
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 4688 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 4689
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 4690 SUMMARY FINANCIAL INFORMATION OF STURBROOK INVESTORS, LTD. The summary financial information of Sturbrook Investors, Ltd. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Sturbrook Investors, Ltd. for the years ended December 31, 1997 and 1996, is based on unaudited financial statements. The amounts for 1995, 1994 and 1993 is based on unaudited financial information which is not included in the Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements."
STURBROOK INVESTORS, LTD. ---------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Operating Data: Total Revenues......... $ 1,176 $ 1,064 $ 1,480 $ 1,382 $ 1,371 $ 1,293 $ 1,229 Net Income (loss)............ $ 231 $ (9) $ 65 $ (26) $ 94 $ 50 $ (96) Net Income (Loss) per limited partnership unit........... $ 6,189.19 $ (243.24) $ 1,729.73 $ (702.70) $ 2,513.51 $ 1,351.35 $ (2,567.57) Distributions per limited partnership unit........... -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Balance Sheet Data: Cash and Cash Equivalents.... $ 247 $ 17 $ 97 $ 174 $ 209 $ 182 $ 113 Real Estate, Net of Accumulated Depreciation... $ 3,137 $ 3,196 $ 3,181 $ 3,063 $ 3,121 $ 3,116 $ 3,159 Total Assets........... $ 3,776 $ 3,619 $ 3,604 $ 3,609 $ 3,719 $ 3,678 $ 3,699 Notes Payable................ $ 3,882 $ 3,976 $ 3,959 $ 4,045 $ 4,123 $ 4,206 $ 4,270 General Partners' Capital/ (Deficit)................ $ (32) $ (35) $ (34) $ (35) $ (35) $ (36) $ (37) Limited Partners' Capital/ (Deficit)................ $ (188) $ (490) $ (417) $ (481) $ (455) $ (549) $ (597) Partners' Deficit.......... $ (220) $ (525) $ (451) $ (516) $ (490) $ (585) $ (634) Total Distributions.... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Book value per limited partnership unit......... $(5,081.08) $(13,243.24) $(11,270.27) $(13,000.00) $(12,297.30) $(14,833.92) $(16,137.86) Net increase (decrease) in cash and cash equivalents.............. $ 150 $ (157) $ (77) $ (35) $ 27 $ 69 $ 12 Net cash provided by operating activities..... $ 423 $ 241 $ 348 $ 224 $ 306 $ 262 $ 116 Ratio of earnings to fixed charges.................. 1.89/1 0.97/1 1.18/1 0.93/1 1.26/1 1.13/1 0.75/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO STURBROOK OPERATING INVESTORS, PARTNERSHIP LTD. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,141.25 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $ 3889.00 $0
S-20 4691 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 4692 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We value your property to be worth $7,300,000, less approximately $1,612,285 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 4693 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 4694 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Sturbrook Investors, Ltd. have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's properties, including the initial construction, which occurred in 1977. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2031 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-24 4695 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 4696 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. Your partnership's private placement memorandum, dated January 1, 1982, pursuant to which units in your partnership were sold, indicated that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's property would generally be sold within three to seven years of their acquisition, provided market conditions permit. The private placement memorandum also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided in the partnership agreement, the existence of the partnership would continue until the year 2031. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing S-26 4697 economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $3,256,304 and $139,037 of balloon payments due on its mortgage debts in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest, consisting of a 0% limited partnership interest and a 1.00% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in S-27 4698 June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. S-28 4699 Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from a $9,000 loss for the nine months ended September 30, 1997, to net income of $231,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments totaling $3,395,341. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you S-29 4700 would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. S-30 4701 There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,889.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,141.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the S-31 4702 Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. Further, while the original projected time frame in the original offering document for your partnership units stated that the properties may be sold in approximately three to seven years from the date of acquisition, such properties were not so sold. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." S-32 4703 VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the/each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for Excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.01%, resulting in a final capitalization rate of 9.74%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- ---------- Estimated Total Gross Property Value $681,930 9.34% $7,300,000
- --------------- (1) The total net operating income is equal to total revenues of $1,487,913, less total expenses of $737,283 and recurring replacement costs of $68,700. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,798,609. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. S-33 4704 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 682,000 Capitalization rate......................................... 9.34% ----------- Gross valuation of partnership properties................... 7,300,000 Plus: Cash and cash equivalents............................. 102,420 Plus: Other partnership assets, net of security deposits.... 246,092 Less: Mortgage debt, including accrued interest............. (3,972,381) Less: Accounts payable and accrued expenses................. (33,101) Less: Other liabilities..................................... (49,636) ----------- Partnership valuation before taxes and certain costs........ 3,593,394 Less: Disposition fees...................................... 0 Less: Disposition fees -- Shearson.......................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (1,612,285) Less: Closing costs......................................... (182,500) ----------- Estimates net valuation of your partnership................. 1,798,609 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 1,798,609 Total number of units............................. 37.0 ----------- Estimated valuation per unit................................ 48,611 =========== Cash consideration per unit................................. 48,611 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $48,611 by the $25 liquidation preference of each Preferred OP Unit to get 1,944.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $48,611 by a price of $38.69 to get 1,256.50 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $1,798,609 or .32% is the net valuation of your partnership. S-34 4705 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from a $9,000 loss for the nine months ended September 30, 1997 to a net income of $231,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 4706 11. The estimated unit value of $48,611, based on a total estimated value of your partnership's property of $7,300,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,889.00 per year on the number of Preferred OP Units, or distributions of $3,141.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 4707 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 4708 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 30, 2031 unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 48,611 Partnership preferred units................................. $ 48,611(1) Partnership common units.................................... $ 48,611(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 48,611 Estimated going concern value............................. $ 42,921 Net book value (deficit).................................. $(56,885) Alternative going concern value........................... $ 39,088(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Adjuster's International, Inc. ("AI") is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property, determining the physical condition of the property and what repairs are needed and then estimating the cost of such repairs based upon its experience in making such estimates. AI was retained by us because of its experience in evaluating needed repairs of real property and paid $2,500 by us for its reports. Such payments were not contingent upon completion of the offer. AI has no material relationship with us or our affiliates except for such reports and AI has conducted, is currently conducting and may in the future conduct similar analyses of other property held by us and our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of the reports, which are not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant S-38 4709 information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 16.5%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $42,921 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in November 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $39,088 is based on selling the property when the balloon payment is S-39 4710 due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $56,885.35 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $47,579 per unit, going concern value of $52,348 per unit and liquidation value of $42,721 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $1,032, $(3,737) and $(5,890). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-40 4711 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general S-41 4712 market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SUNRISE V APARTMENTS ---------- Total Revenues.............................................. $1,556,021 Operating Expenses.......................................... (718,977) Replacement Reserves -- Net................................. (263,215) Debt Service................................................ (436,544) Capital Expenditures........................................ (28,626) ---------- Net Cash Flow..................................... $ 108,659 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property S-42 4713 management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 9.34%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $1,612,285. Stanger observed that your partnership liquidation value of $1,798,609 was divided by the total units outstanding of 37 to provide the liquidation value per unit of $48,611. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $682,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $20,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 9.84%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 16.5%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 11.5%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 37 to achieve management's estimate of going concern value of $44,992 per unit. S-43 4714 Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $48,611 per unit is equal to management's estimate of liquidation value, and reflects a 8% premium to management's estimate of going concern value of $44,992. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of the transactions, preferred stock of AIMCO with a dividend equal to the distributions on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11% Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 18% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 20% discount rate was based upon the property's estimated level internal rate of return of the portfolio derived from the discounted cash flow analysis, (13% as described above), plus S-44 4715 a premium reflecting the additional risk associated with mortgage debt equal to approximately 55% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $47,579, $52,348, and $42,721 representing premiums (discounts) to the offer price of 2.1%, 7.6% and 12.1%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; S-45 4716 (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Sturbrook Investors, Ltd, is a California limited partnership which completed a private offering in 1982. Insignia acquired the general partner of your partnership in 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 36 limited partners of your partnership and a total of 37 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 15, 1981 for the purpose of owning an apartment property located in Richmond, Virginia, known as "Sunrise V." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1977 and consists of 229 apartment units. Your partnership's property had an average occupancy rate of approximately 96.80% in 1998, 95.63% in 1997 and 95.63% in 1996. S-46 4717 Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Your partnership has received a report from Adjuster's International, Inc. ("AI") that your partnership's property needs deferred maintenance of $1,612,625 primarily for window replacement, vinyl siding, heating, ventilation and air conditioning systems and pool repair. AI is a loss consulting and public adjusting firm, which does replacement/repair costs and work-in-process analyses. Its staff consists of consultants, senior public adjusters and certified professional public adjusters. AI performed its analysis of the physical condition of the property in the ordinary course of its business by inspecting the property and then estimating needed repairs for each part of the building inspected. AI was retained by and paid $2,500 by us for its report and has conducted and may in the future conduct similar analyses of other properties held by our affiliates in the ordinary course of business. No limitations were imposed on AI by the general partner or us. A copy of report, which is not dated, by AI may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations for 1999 total $1,612,285 and are intended to be paid for out of cash flow or borrowings. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $509 $476 $473 $445 $431
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $73,536 of $6,808,900 of assessed valuation with a current yearly tax rate of 1.08%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 1.10% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2031 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-47 4718 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 97% and $536, respectively, at December 31, 1998, compared to 96% and $509, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this occupancy to remain strong in the near future due to promising employment growth in the area. In addition, the general partner noted that it expects to spend approximately $1,612,285 for capital improvements at the property in 1999 to enhance the property's pool, tennis courts, cabinets, and countertops. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property and by pledge of revenues from the apartment property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,256,304, payable to Marine Midland Bank and Bank of America, which bears interest at a rate of 7.6%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $139,037, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. S-48 4719 COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,624,800 of limited partnership units in 1982 for $70,941 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. According to the private placement memorandum dated January 1, 1982, by which units in your partnership were originally offered, the general partner of your partnership (which at the time was not affiliated with AIMCO) indicated that prior partnerships sponsored by affiliates of the general partner had, on average, begun selling their properties during the third year after the investments were made and had sold all of their properties after seven years of ownership. The private placement memorandum further stated, however, that the general partner was unable to predict how long the partnership would remain invested in the property and that the partnership acquired such property for investment rather than resale. In any event, according to the private placement memorandum, the general partner anticipated that a disposition of the property would depend on, among other things, the current real estate and money markets, economic climate and income tax consequences to the limited partners. We do not know why your partnership did not sell all of its properties within such holding period. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2031, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners will not liable to your partnership or limited partners because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." If such a claim for indemnification (other than for expenses incurred in a successful defense) is asserted against your partnership, your partnership will, unless in the opinion of its counsel the matter has been settled S-49 4720 by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy and will be governed by the final adjudication of such issue. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions From 1993 through 1998 your partnership has paid no distributions. The original cost per unit was $70,941. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.0% interest in your partnership, including 0 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $ 5,196 1995........................................................ 8,163 1996........................................................ 8,726 1997........................................................ 5,196 1998........................................................ 13,046
S-50 4721 In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- Not 1994........................................................ available 1995........................................................ $67,600 1996........................................................ 68,988 1997........................................................ 73,266 1998........................................................ 78,953
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-51 4722 SELECTED FINANCIAL INFORMATION OF STURBROOK INVESTOR, LTD. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Woodmere Associates, L.P. taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from unaudited financial information which are not included in this Prospectus Supplement. See 'Index to Financial Statements.'
STURBROOK INVESTORS, LTD. -------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, -------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- -------- --------- -------- --------- --------- ---------- (IN THOUSANDS, EXCEPT UNIT DATA) Cash and Cash Equivalents............. $ 247 $ 17 $ 97 $ 174 $ 209 $ 182 $ 113 Land & Building....................... 6,173 5,994 6,038 5,682 5,529 5,334 5,205 Accumulated Depreciation.............. (3,036) (2,798) (2,857) (2,619) (2,408) (2,218) (2,046) Other Assets.......................... 392 406 326 372 389 380 427 --------- -------- --------- -------- --------- --------- ---------- Total Assets.................. $ 3,776 $ 3,619 $ 3,604 $ 3,609 $ 3,719 $ 3,678 $ 3,699 ========= ======== ========= ======== ========= ========= ========== Notes Payable......................... $ 3,882 $ 3,976 $ 3,959 $ 4,045 $ 4,123 $ 4,206 $ 4,270 Other Liabilities..................... 114 168 96 80 86 56 63 --------- -------- --------- -------- --------- --------- ---------- Total Liabilities............. $ 3,996 $ 4,144 $ 4,055 $ 4,125 $ 4,209 $ 4,262 $ 4,333 --------- -------- --------- -------- --------- --------- ---------- Partners' Deficit............. $ (220) $ (525) $ (451) $ (516) $ (490) $ (585) $ (634) ========= ======== ========= ======== ========= ========= ==========
STURBROOK INVESTORS, LTD. -------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- -------- --------- -------- --------- --------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue........................ $ 1,109 $ 1,002 $ 1,399 $ 1,309 $ 1,300 $ 1,222 $ 1,186 Other Income.......................... 67 62 81 73 71 71 43 --------- -------- --------- -------- --------- --------- ---------- Total Revenue................. $ 1,176 $ 1,064 $ 1,480 $ 1,382 $ 1,371 $ 1,293 $ 1,229 --------- -------- --------- -------- --------- --------- ---------- Operating Expenses.................... $ 425 $ 556 $ 721 $ 741 $ 642 $ 618 $ 710 General & Administrative.............. 25 15 17 13 15 15 15 Depreciation.......................... 179 179 238 211 191 172 157 Interest Expense...................... 260 267 364 374 367 373 381 Property Taxes........................ 56 56 75 69 62 65 62 --------- -------- --------- -------- --------- --------- ---------- Total Expenses................ $ 945 $ 1,073 $ 1,415 $ 1,408 $ 1,277 $ 1,243 $ 1,325 --------- -------- --------- -------- --------- --------- ---------- Net Income (Loss) before extraordinary items............................... $ 231 $ (9) $ 65 $ (26) $ 94 $ 50 $ (96) Extraordinary Items................... -- -- -- -- -- -- -- --------- -------- --------- -------- --------- --------- ---------- Net Income (Loss)..................... $ 231 $ (9) $ 65 $ (26) $ 94 $ 50 $ (96) ========= ======== ========= ======== ========= ========= ========== Net Income (Loss) per limited partnership unit.................... $6,189.19 $(243.24) $1,729.73 $(702.70) $2,513.51 $1,351.35 $(2,567.57) ========= ======== ========= ======== ========= ========= ========== Distributions per limited partnership unit................................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========= ======== ========= ======== ========= ========= ==========
S-52 4723 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $231,000 for the nine months ended September 30, 1998, compared to a net loss of $9,000 for the nine months ended September 30, 1997. The increase in net income of $240,000 was primarily the result of an increase in rental revenue and a decrease in operating expenses. REVENUES Rental and other property revenues from the Partnership Property totaled $1,176,000 for the nine months ended September 30, 1998, compared to $1,064,000 for the nine months ended September 30, 1997. The increase of $112,000, or 10.53%, was primarily due to an increase in rental rates of approximately 4%, combined with a 5% increase in occupancy. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $425,000 for the nine months ended September 30, 1998, compared to $556,000 for the nine months ended September 30, 1997, a decrease of $131,000 or 23.56%. The decrease was primarily the result of lower costs for advertising, resident relations, and exterior property repairs and maintenance. Partnership Property management expenses totaled $59,000 for the nine months ended September 30, 1998, compared to $53,000 for the nine months ended September 30, 1997, an increase of $6,000, or 11.32%. The increase resulted from an increase in rental revenue, as the management fees are a percentage of total revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $25,000 for the nine months ended September 30, 1998 compared to $15,000 for the nine months ended September 30, 1997, an increase of $10,000. The increase is due to an increase in partnership administrative costs and asset management fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $260,000 for the nine months ended September 30, 1998, compared to $267,000 for the nine months ended September 30, 1997, a decrease of $7,000. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $65,000 for the year ended December 31, 1997, compared to a net loss of $26,000 for the year ended December 31, 1996. The increase in net income of $91,000 was primarily the result of an increase in rental revenue, combined with a slight increase in expenses. S-53 4724 REVENUES Rental and other property revenues from the partnership's property totaled $1,480,000 for the year ended December 31, 1997, compared to $1,382,000 for the year ended December 31, 1996. The increase of $98,000, or 7%, was primarily due to a 7% increase in average rental, while occupancy remained stable at 93%. There was also an increase in other revenue due to increases in lease cancellation fees. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $721,000 for the year ended December 31, 1997, compared to $741,000 for the year ended December 31, 1996, a decrease of $20,000 or 2.7%. This decrease is due primarily to lower maintenance expenses. Management expenses totaled $73,000 for the year ended December 31, 1997, compared to $69,000 for the year ended December 31, 1996, an increase of $4,000. This increase is due to increased rental revenue, as management fees are a function based on a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $17,000 for the year ended December 31, 1997 compared to $13,000 for the year ended December 31, 1996, an increase of $4,000. The increase is primarily due to an increase in partnership administrative expenses and asset management fees. DEPRECIATION EXPENSE Depreciation expense increased $27,000 to $238,000, due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $364,000 for the year ended December 31, 1997, compared to $374,000 for the year ended December 31, 1996, a decrease of $10,000. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $26,000 for the year ended December 31, 1996, compared to net income of $94,000 for the year ended December 31, 1995. The increase in net loss of $120,000 was primarily the result of an increase in operating and other expenses, while revenues remained stable. REVENUES Rental and other property revenues from the partnership's property totaled $1,382,000 for the year ended December 31, 1996, compared to $1,371,000 for the year ended December 31, 1995. The increase of $11,000, or 0.8%, was primarily due to a 2% increase in average rental rates, off-set by a 1% decrease in occupancy, while other income remained stable. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $741,000 for the year ended December 31, 1996, compared to $642,000 for the year ended December 31, 1995, an increase of $99,000 or 15.4%. This increase is due primarily to higher maintenance and advertising expenses, S-54 4725 combined with an increase in utilities. Management expenses totaled $69,000 for the year ended December 31, 1996, compared to $68,000 for the year ended December 31, 1995, an increase of $1,000. DEPRECIATION EXPENSE Depreciation expense increased $20,000 to $211,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $374,000 for the year ended December 31, 1997, compared to $367,000 for the year ended December 31, 1996, an increase of $7,000. The increase is due to additional amortization of the loan costs associated with the mortgage indebtedness. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $247,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $137,000, was $4,019,000. The mortgages require monthly payments of approximately $36,000 until November, 2002, at which time a balloon payment of approximately $3,539,000 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-55 4726 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 35 units of your partnership (up to 9.25 units) for consideration per unit of (i) 1,944.50 Preferred OP Units, (ii) 1,256.50 Common OP Units, or (iii) $48,611 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-56 4727 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-57 4728 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-58 4729 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-59 4730 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-60 4731 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-61 4732 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-62 4733 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-63 4734 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-64 4735 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-65 4736 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-66 4737 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-67 4738 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-68 4739 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-69 4740 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-70 4741 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-71 4742 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-72 4743 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under California law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash from Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2031. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating directly or indirectly, develop, own, hold, Partnership is to conduct any business that maintain, operate for the production of may be lawfully conducted by a limited income and dispose of property situated in partnership organized pursuant to the the United States. Subject to restrictions Delaware Revised Uniform Limited Part- contained in your partnership's agreement of nership Act (as amended from time to time, limited partnership, your partnership may or any successor to such statute) (the perform all act necessary or appropriate in "Delaware Limited Partnership Act"), connection therewith and reasonably related provided that such business is to be thereto, including borrowing money, creating conducted in a manner that permits AIMCO to liens and investing funds in financial be qualified as a REIT, unless AIMCO ceases instruments. to qualify as a REIT. The AIMCO Operating Partner-
S-73 4744 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The corporate general partner of your The general partner is authorized to issue partnership is authorized to issue additional partnership interests in the additional limited partnership interests in AIMCO Operating Partnership for any your partnership and may admit additional partnership purpose from time to time to the limited partners by selling 3 A units and limited partners and to other persons, and not less than 26 nor more than 34 B units to admit such other persons as additional for cash and notes to selected persons who limited partners, on terms and conditions fulfill the requirements set forth in your and for such capital contributions as may be partnership's agreement of limited established by the general partner in its partnership. The capital contribution need sole discretion. The net capital not be equal for all limited partners and no contribution need not be equal for all OP action or consent is required in connection Unitholders. No action or consent by the OP with the admission of any additional limited Unitholders is required in connection with partners. the admission of any additional OP The general partner is also authorized to Unitholder. See "Description of OP issue additional units for sale from time to Units -- Management by the AIMCO GP" in the time, the number, price and terms of which accompanying Prospectus. Subject to Delaware will be determined at the sole discretion of law, any additional partnership interests the general partner. If such additional may be issued in one or more classes, or one units are sold on terms other than those at or more series of any of such classes, with which the original units were offered or such designations, preferences and relative, more than 24 months have passed since the participating, optional or other special last amendment adding limited partners, rights, powers and duties as shall be those limited partners who purchased the determined by the general partner, in its original units will possess preemptive sole and absolute discretion without the rights in connection with the sale of approval of any OP Unitholder, and set forth additional units. in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or contract with affiliated persons for the contribute funds or other assets to its management or supervision of any or all of subsidiaries or other persons in which it the assets of your partnership has an equity investment,
S-74 4745 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or for the performance of any other services and such persons may borrow funds from the which the general partner deemed necessary AIMCO Operating Partnership, on terms and or advisable for the operation of your conditions established in the sole and partnership. Any and all compensation paid absolute discretion of the general partner. to such affiliated persons in connection To the extent consistent with the business with services performed for your partnership purpose of the AIMCO Operating Partnership must be reasonable and fair to your and the permitted activities of the general partnership and the partners. Such contracts partner, the AIMCO Operating Partnership may between your partnership and the general transfer assets to joint ventures, limited partner or any affiliates must provide that liability companies, partnerships, it may be cancelled at any time by your corporations, business trusts or other partnership without penalty upon 60 days business entities in which it is or thereby prior written notice. In addition, the becomes a participant upon such terms and general partner and its affiliates may lend subject to such conditions consistent with money to your partnership which will be the AIMCO Operating Partnership Agreement repaid in accordance with the terms of the and applicable law as the general partner, advances out of the gross receipts of your in its sole and absolute discretion, partnership with interest at the then believes to be advisable. Except as prevailing commercial rate or at the highest expressly permitted by the AIMCO Operating rate permitted by the applicable usury law, Partnership Agreement, neither the general whichever is less. Your partnership may lend partner nor any of its affiliates may sell, working capital reserves which are not transfer or convey any property to the AIMCO needed to meet partnership expenses or make Operating Partnership, directly or distributions as determined in the sole indirectly, except pursuant to transactions discretion of the general partner to the that are determined by the general partner general partner or its affiliates. Such in good faith to be fair and reasonable. loans are payable on demand and bear interest at the rate of interest charged by Wells Fargo Bank to its prime commercial customers for unsecured loans, are otherwise commercially reasonable and in the aggregate, do not exceed the amount of excess working capital reserves of your partnership.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money on the credit of contains no restrictions on borrowings, and and enter into obligations, recourse and the general partner has full power and nonrecourse, on behalf of your partnership authority to borrow money on behalf of the and to give as security therefor any AIMCO Operating Partnership. The AIMCO partnership's property. Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their designated representative to inspect purpose of such demand and at such OP and, at their sole cost and expense, copy Unitholder's own expense, to obtain a the contents of the books and records of current list of the name and last known your partnership at the principal place of business, residence or mailing address of business of your partnership during normal the general partner and each other OP business hours. Unitholder.
Management Control The general partner of your partnership All management powers over the business and exclusively manages and controls your affairs of the AIMCO Operating Partnership partnership and all aspects of its business. are vested in AIMCO-GP, Inc., which is the The general partner has all the general partner. No
S-75 4746 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP rights and powers which may be possessed by OP Unitholder has any right to participate a general partner under California law. in or exercise control or management power Subject to the limitations contained in your over the business and affairs of the AIMCO partnership's agreement of limited Operating Partnership. The OP Unitholders partnership, the general partner has the have the right to vote on certain matters power to perform acts, upon such terms and described under "Comparison of Your Units conditions as the general partner deems and AIMCO OP Units -- Voting Rights" below. appropriate and in furtherance of your The general partner may not be removed by partnership's business. The limited partners the OP Unitholders with or without cause. have no right to participate in the management or control of your partnership, In addition to the powers granted a general to act on behalf of your partnership, to partner of a limited partnership under bind your partnership, or, except as applicable law or that are granted to the specifically authorized in your general partner under any other provision of partnership's agreement of limited the AIMCO Operating Partnership Agreement, partnership, to vote upon any matter the general partner, subject to the other involving your partnership. provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, your partnership, to forth in the AIMCO Operating Partnership the extent of its assets, will indemnify and Agreement, the general partner is not liable hold harmless the general partner of your to the AIMCO Operating Partnership for partnership and its affiliates from any ex- losses sustained, liabilities incurred or pense, liability or loss resulting from any benefits not derived as a result of errors act or omission by the general partner in judgment or mistakes of fact or law of within the scope of the authority conferred any act or omission if the general partner by your partnership's agreement of limited acted in good faith. The AIMCO Operating partnership, except for acts or omissions Partnership Agreement provides for constituting fraud, bad faith, willful indemnification of AIMCO, or any director or misconduct or gross negligence, including officer of AIMCO (in its capacity as the all such liabilities under Federal and state previous general partner of the AIMCO securities laws as permitted by law. Operating Partnership), the general partner, Attorneys' fees may be paid as incurred. If any officer or director of general partner such a claim for indemnification (other than or the AIMCO Operating Partnership and such for expenses incurred in a successful other persons as the general partner defense) is
S-76 4747 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP asserted against your partnership, your may designate from and against all losses, partnership will, unless in the opinion of claims, damages, liabilities, joint or its counsel the matter has been settled by several, expenses (including legal fees), controlling precedent, submit to a court of fines, settlements and other amounts appropriate jurisdiction the question of incurred in connection with any actions whether such indemnification by it is relating to the operations of the AIMCO against public policy and will be governed Operating Partnership, as set forth in the by the final adjudication of such issue. AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner upon a vote of the business and affairs of the AIMCO the limited partners owning a majority of Operating Partnership. The general partner the outstanding units and elect a substi- may not be removed as general partner of the tute general partner if no general partner AIMCO Operating Partnership by the OP remains. Subject to limitations set forth in Unitholders with or without cause. Under the your partnership's agreement of limited AIMCO Operating Partnership Agreement, the partnership, a general partner may withdraw general partner may, in its sole discretion, from your partnership at any time. An prevent a transferee of an OP Unit from additional general partner may be admitted becoming a substituted limited partner with the consent of the general partners and pursuant to the AIMCO Operating Partnership the limited partners owning a majority of Agreement. The general partner may exercise the outstanding units. A limited partner may this right of approval to deter, delay or not transfer its interests without the hamper attempts by persons to acquire a written consent of the general partner which controlling interest in the AIMCO Operating may be withheld at the sole discretion of Partnership. Additionally, the AIMCO the corporate general partner. Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to add representations, duties or Agreement, whereby the general partner may, obligations of the general partner or without the consent of the OP Unitholders, surrender a right or power granted to the amend the AIMCO Operating Partnership general partner, effect a ministerial change Agreement, amendments to the AIMCO Operating which does not materially affect the rights Partnership Agreement re- of the limited
S-77 4748 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners and as required by law. All other quire the consent of the holders of a amendments must be approved by the limited majority of the outstanding Common OP Units, partners owning more than 50% of the units excluding AIMCO and certain other limited and the general partner. Amendments of exclusions (a "Majority in Interest"). provisions that require the consent of a Amendments to the AIMCO Operating greater percentage than a majority may be Partnership Agreement may be proposed by the amended only the percentage required in such general partner or by holders of a Majority provisions. In addition, any amendment that in Interest. Following such proposal, the adversely affects a partner or partners must general partner will submit any proposed be approved by the affected parties. amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner but may receive fees for additional Operating Partnership. In addition, the services. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has personally liable for claims against or personal liability for the AIMCO Operating debts of your partnership, except as Partnership's debts and obligations, and provided under California law. liability of the OP Unitholders for the AIMCO Operating Partnership's debts and obligations is generally limited to the amount of their investment in the AIMCO Operating Partnership. However, the limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the
S-78 4749 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner has the responsibility Unless otherwise provided for in the for the safekeeping and use of all funds and relevant partnership agreement, Delaware law assets of your partnership and must not generally requires a general partner of a employ or permit others to employ such funds Delaware limited partnership to adhere to or assets in any manner except for the fiduciary duty standards under which it owes exclusive benefit of your partnership. Your its limited partners the highest duties of partnership's agreement of limited good faith, fairness and loyalty and which partnership provides that the general generally prohibit such general partner from partner and its affiliates with whom it taking any action or engaging in any contracts on behalf of your partnership must transaction as to which it has a conflict of devote such of their time to the business of interest. The AIMCO Operating Partnership your partnership as they may, in their sole Agreement expressly authorizes the general discretion, deem necessary to conduct said partner to enter into, on behalf of the business. The general partner and its AIMCO Operating Partnership, a right of affiliates may engage for their own account first opportunity arrangement and other and for the account of others in any conflict avoidance agreements with various business ventures, including the purchase of affiliates of the AIMCO Operating real estate properties, the development, Partnership and the general partner, on such operation, management or syndication of real terms as the general partner, in its sole estate properties, and your partnership will and absolute discretion, believes are have no right to participate therein. advisable. The AIMCO Operating Partnership However, the general partner must at all Agreement expressly limits the liability of times act in the best interests of your the general partner by providing that the partnership and in no event contrary to the general partner, and its officers and fiduciary relationship that it bears at all directors will not be liable or accountable times in relation to your partnership and to in damages to the AIMCO Operating each of the partners with regard to your Partnership, the limited partners or as- partnership's business. signees for errors in judgment or mistakes of fact or law or of any act or omission if In general, your partnership's agreement of the general partner or such director or limited partnership and the AIMCO Operating officer acted in good faith. See Partnership Agreement have limitations on "Description of OP Units -- Fiduciary the liability of the general partner but Responsibilities" in the accompanying such limitations differ and provide more Prospectus. protection for the general partner of the AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO
S-79 4750 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Oper-
S-80 4751 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS after the fifth anniversary of the ating Partnership sells or refi- issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the limited AIMCO Operating Partnership OP Unitholders have voting partners owning a majority Agreement, the holders of rights only with respect to of the outstanding units may the Preferred OP Units will certain limited matters such without the concurrence of have the same voting rights as certain amendments and the general partner, vote to as holders of the Common OP termination of the AIMCO amend your partnership's Units. See "Description of Operating Partnership agreement of limited OP Units" in the accompany- Agreement and certain partnership, subject to ing Prospectus. So long as transactions such as the certain limitations; any Preferred OP Units are institution of bankruptcy dissolve and terminate your outstanding, in addition to proceedings, an assignment partnership; remove one or any other vote or consent of for the benefit of creditors more general partners; elect partners required by law or and certain transfers by the one or more general by the AIMCO Operating general partner of its partners; and approve or Partnership Agreement, the interest in the AIMCO disapprove the sale of all affirmative vote or consent Operating Partnership or the or substantially all of the of holders of at least 50% admission of a successor assets of your partnership. of the outstanding Preferred general partner. The limited partners owning OP Units will be necessary a majority of the out- for effecting any amendment Under the AIMCO Operating standing units must also of any of the provisions of Partnership Agreement, the approve certain transactions the Partnership Unit general partner has the which may adversely affect Designation of the Preferred power to effect the your partnership. OP Units that materially and acquisition, sale, transfer, In general, you have greater adversely affects the rights exchange or other voting rights in your or preferences of the disposition of any assets of partnership than you will holders of the Preferred OP the AIMCO Operating have as an OP Unitholder. OP Units. The creation or Partnership (including, but Unitholders cannot remove issuance of any class or not limited to, the exercise the general partner of the series of partnership units, or grant of any conversion, AIMCO Operating Partnership. including, without option, privilege or limitation, any partner- subscription right or any ship units that may have other right available in rights senior or superior to connection with any assets the Preferred OP Units, at any time held by the shall not be deemed to AIMCO Operating Partnership) materially adversely affect or the merger, the rights or preferences of consolidation, the holders of Preferred OP reorganization or other Units. With respect to the combination of the AIMCO exercise of the above Operating Partnership with described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO
S-81 4752 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Net Cash from at the rate of $0.50 per or such portion as the Operations are to be Preferred OP Unit; provided, general partner may in its distributed from time to however, that at any time sole and absolute discretion time but no less often than and from time to time on or determine, of Available Cash quarterly and not later than after the fifth anniversary (as defined in the AIMCO ninety days after the end of of the issue date of the Operating Partnership the fiscal quarter. The Preferred OP Units, the Agreement) generated by the distributions payable to the AIMCO Operating Partnership AIMCO Operating Partnership partners are not fixed in may adjust the annual during such quarter to the amount and depend upon the distribution rate on the general partner, the special operating results and net Preferred OP Units to the limited partner and the sales or refinancing lower of (i) 2.00% plus the holders of Common OP Units proceeds available from the annual interest rate then on the record date es- disposition of your applicable to U.S. Treasury tablished by the general partnership's assets. notes with a maturity of partner with respect to such five years, and (ii) the quarter, in annual dividend rate on
S-82 4753 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the most recently issued accordance with their AIMCO non-convertible respective interests in the preferred stock which ranks AIMCO Operating Partnership on a parity with its Class H on such record date. Holders Cumulative Preferred Stock. of any other Preferred OP Such distributions will be Units issued in the future cumulative from the date of may have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-83 4754 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) such trans- securities exchange. The transferability of the OP fer is in compliance with Preferred OP Units are Units. Until the expiration applicable Federal and state subject to restrictions on of one year from the date on securities law, (2) a transfer as set forth in the which an OP Unitholder written assignment has been AIMCO Operating Partnership acquired OP Units, subject duly executed by the as- Agreement. to certain exceptions, such signor and assignee, (3) the OP Unitholder may not written approval of the Pursuant to the AIMCO transfer all or any por- general partner which may be Operating Partnership tion of its OP Units to any withheld in the sole and Agreement, until the transferee without the absolute discretion of the expiration of one year from consent of the general general partner has been the date on which a holder partner, which consent may granted and (4) the assignor of Preferred OP Units be withheld in its sole and or the assignee pays a acquired Preferred OP Units, absolute discretion. After transfer fee. subject to certain the expiration of one year, There are no redemption exceptions, such holder of such OP Unitholder has the rights associated with your Preferred OP Units may not right to transfer all or any units. transfer all or any portion portion of its OP Units to of its Preferred OP Units to any person, subject to the any transferee without the satisfaction of certain con- consent of the general ditions specified in the partner, which consent may AIMCO Operating Partnership be withheld in its sole and Agreement, including the absolute discretion. After general partner's right of the expiration of one year, first refusal. See such holders of Preferred OP "Description of OP Units -- Units has the right to Transfers and Withdrawals" transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-84 4755 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-85 4756 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-86 4757 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-87 4758 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-88 4759 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-89 4760 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-90 4761 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-91 4762 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set apart for
S-92 4763 PREFERRED OP UNITS CLASS I PREFERRED STOCK When distributions are not paid in full upon payment, except in limited circumstances, no the Preferred OP Units or any Parity Units, dividends may be declared or paid or set all distributions declared upon the apart for payment by AIMCO and no other Preferred OP Units and any Parity Units will distribution of cash or other property may be declared ratably in proportion to the be declared or made, directly or indirectly, respective amounts of distributions by AIMCO with respect to any shares of Class accumulated, accrued and unpaid on the I Junior Stock, nor shall any shares of Preferred OP Units and such Parity Units. Class I Junior Stock be redeemed, purchased Unless full cumulative distributions on the or otherwise acquired for any consideration, Preferred OP Units have been declared and nor shall any other cash or other property paid, except in limited circumstances, no be paid or distributed to or for the benefit distributions may be declared or paid or set of holders of shares of Class I Junior apart for payment by the AIMCO Operating Stock. See "Description of Class I Preferred Partnership and no other distribution of Stock -- Dividends." cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation
S-93 4764 PREFERRED OP UNITS CLASS I PREFERRED STOCK Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. The Preferred OP Units may not be the day of the event causing the shares to redeemed at the option of the AIMCO be held in the trust and (ii) the price per Operating Partnership. See "Description of share received by the trustee from the sale Preferred OP Units -- Redemption." or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-94 4765 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $8,726 in 1996, $5,196 in 1997 and $13,046 in 1998. The property manager received management fees of $68,988 in 1996, $73,266 in 1997 and $78,953 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-95 4766 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $376,531 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate or ,at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-96 4767 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-97 4768 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Notes to Financial Statements (Unaudited)................... F-5 Balance Sheet as of December 31, 1997 (Unaudited)........... F-6 Statement of Income for the year ended December 31, 1997 (Unaudited)............................................... F-7 Statement of Changes in Partners' Deficit (Unaudited)....... F-8 Statement of Cash Flows (Unaudited)......................... F-9 Notes to Financial Statements (Unaudited)................... F-10 Balance Sheet as of December 31, 1996 (Unaudited)........... F-15 Statement of Operations for the year ended December 31, 1996 (Unaudited)............................................... F-16 Statement of Changes in Partners' Deficit (Unaudited)....... F-17 Statement of Cash Flows (Unaudited)......................... F-18 Notes to Financial Statements (Unaudited)................... F-19
F-1 4769 STURBROOK INVESTORS, LTD. CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 247 Receivables and deposits.................................... 88 Restricted escrows.......................................... 233 Other assets................................................ 71 Investment property Land...................................................... $ 535 Building and related personal property.................... 5,638 ------- 6,173 ------- Less: Accumulated depreciation............................ (3,036) 3,137 ------- ------ Total assets...................................... $3,776 ====== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 18 Other accrued liabilities................................... 47 Tenant security deposits.................................... 49 Notes payable............................................... 3,882 Partners' deficit................................. (220) ------ Total liabilities and partners' deficit........... $3,776 ======
See accompanying note F-2 4770 STURBROOK INVESTORS, LTD. CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ------- ------- Revenues: Rental income............................................. $1,109 $1,002 Other income.............................................. 67 62 ------ ------ Total Revenues.................................... 1,176 1,064 Expenses: Operating expenses........................................ 425 556 General and administrative expenses....................... 25 15 Depreciation expense...................................... 179 179 Interest expense.......................................... 260 267 Property tax expense...................................... 56 56 ------ ------ Total Expenses.................................... 945 1,073 ------ ------ Net income (loss)................................. $ 231 $ (9) ====== ======
See accompanying note. F-3 4771 STURBROOK INVESTORS, LTD. CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ------ ------ Operating Activities: Net income (loss)......................................... $ 231 $ (9) Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 207 207 Changes in accounts: Receivables and deposits and other assets.............. (33) (45) Accounts payable and accrued expenses.................. 18 88 ----- ----- Net cash provided by operating activities......... 423 241 ----- ----- Investing Activities: Property improvements and replacements.................... (135) (312) Net (increase) decrease in restricted escrows............. (42) 2 ----- ----- Net cash used in investing activities..................... (177) (310) ----- ----- Financing Activities: Payments on mortgage...................................... (96) (88) ----- ----- Net cash used in financing activities..................... (96) (88) ----- ----- Net increase (decrease) in cash and cash equivalents...... 150 (157) Cash and cash equivalents at beginning of year............ 97 174 ----- ----- Cash and cash equivalents at end of period................ $ 247 $ 17 ===== =====
See accompanying notes. F-4 4772 STURBROOK INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) SEPTEMBER 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Sturbrook Investors, Ltd. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the unaudited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 4773 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEET -- UNAUDITED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 97 Receivables and deposits.................................... 60 Other assets................................................ 191 Loan costs, net of accumulated amortization of $78.......... 75 Apartment property, at cost (Notes C and D): Land...................................................... $ 535 Buildings and related personal property................... 5,503 ------- 6,038 Less accumulated depreciation............................. (2,857) 3,181 ------- ------ $3,604 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 24 Other liabilities......................................... 23 Mortgage notes payable (Notes C and D).................... 3,959 Tenant security deposit liabilities....................... 49 ------ 4,055 Partners' deficit: Limited Partners (37 units issued and outstanding)........ $ (417) General Partner........................................... (34) (451) ------- ------ $3,604 ======
See accompanying notes. F-6 4774 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF INCOME -- UNAUDITED YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,399 Other income.............................................. 81 -------- 1,480 Expenses: Interest.................................................. $364 Depreciation.............................................. 238 Operating................................................. 721 General and administrative................................ 17 Property taxes............................................ 75 1,415 ---- -------- Net Income........................................ $ 65 ======== Net income allocated to general partner (1%).............. $ 1 Net income allocated to limited partners (99%)............ 64 -------- 65 ======== Net income per limited partnership unit................... $1,729.7 ========
See accompanying notes. F-7 4775 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- UNAUDITED
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- (IN THOUSANDS) Partners' deficit at December 31, 1996...................... $(35) $(481) $(516) Net income................................................ 1 64 65 ---- ----- ----- Partners' deficit at December 31, 1997...................... $(34) $(417) $(451) ==== ===== =====
See accompanying notes. F-8 4776 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- UNAUDITED YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Operating activities Net income.................................................. $ 65 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.............................................. 238 Amortization of loan costs and discount................... 47 Changes in accounts: Receivables and deposits............................... (21) Other assets........................................... 3 Accounts payable and accrued liabilities............... (3) Tenant security deposit liabilities.................... 19 ----- Net cash provided by operating activities................... 348 Investing activities Withdrawals from restricted escrows......................... 50 Property improvements and replacements...................... (356) ----- Net cash used in investing activities....................... (306) Financing activities Payments on mortgage notes payable.......................... (119) ----- Net decrease in cash and cash equivalents................... (77) Cash and cash equivalents at December 31, 1996.............. 174 ----- Cash and cash equivalents at December 31, 1997.............. $ 97 ===== Supplemental disclosure of cash flow information Cash paid during the year for interest...................... $ 318 =====
See accompanying notes. F-9 4777 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED DECEMBER 31, 1997 NOTE A -- ORGANIZATION Description of Partnership Sturbrook Investors, Ltd., a California limited partnership (the "Partnership"), was formed in October 1981 to acquire and operate a 229-unit apartment complex in Richmond, Virginia. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the General Partner, Sturbrook Investors, Inc., a California corporation. In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Thirty-seven units of limited partnership interest were issued. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partner or unless the Partners elect to continue the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partner and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To all partners until they have been allocated an amount attributable to the recapture of deductions taken that have been previously allocated to them with respect to assets sold. b. To all partners until they have been allocated sufficient income to recover any losses previously allocated to them. c. Any remaining income will be allocated so as to produce a 5:14 ratio between the aggregate positive adjusted capital account balances of the General Partner and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% to the General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). b. The remainder is allocated 25% to the General Partner and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by F-10 4778 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. F-11 4779 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Restricted Escrows RESERVE ACCOUNT A general Reserve Account was established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until it equals $1,000 per apartment unit or $229,000 in total. The balance at December 31, 1997 is approximately $191,000, which includes interest. NOTE C -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND COST CAPITALIZED RELATED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ---- ---------------- ------------------ Sturbrook Investors, Ltd................... $3,959 $535 $4,327 $1,176 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ----------- ------ ------------ -------- ----------- Sturbrook Investors, Ltd............... $535 $5,503 $6,038 $2,857 11/81 5-30 ---- ------ ------ ------
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $5,682 Property improvements..................................... 356 ------ Balance at end of year.................................... $6,038 ====== Accumulated Depreciation Balance at beginning of year.............................. $2,619 Additions charged to expense.............................. 238 ------ Balance at end of year.................................... $2,857 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $6,038,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is approximately $4,752,000. F-12 4780 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE D -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 consist of the following (in thousands): Mortgage payable to Bank of America, secured by a first deed of trust on the property. This note bears interest at 7.6% per annum. Principal and interest payments of $35 are payable monthly, with a balloon payment of $3,277 due on November 15, 2002......................................... $3,976 Mortgage payable to Bank of America, secured by a second deed of trust on the property. This note bears interest at 7.6% per annum. Interest only payments of $1 are payable monthly, with the principal and unpaid interest due on November 15, 2002......................................... 139 ------ 4,115 Less unamortized loan discounts............................. (156) ------ $3,959 ======
The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property and by pledge of revenues from the apartment property. Scheduled principal payments of mortgage notes payable subsequent to December 31, are as follows (in thousands): 1998........................................................ $ 128 1999........................................................ 138 2000........................................................ 149 2001........................................................ 161 2002........................................................ 3,539 ------ $4,115 ======
NOTE E - TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. (Insignia) own the controlling ownership interest in the Partnership's General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $73 Reimbursements for General Partnership...................... $ 5
For the period January 1, 1997 to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner who received payments on these obligations from the agent. The amount of F-13 4781 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. NOTE F -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable income (in thousands, except unit data): Net income as reported...................................... $ 65 Add: Depreciation differences.................................... 130 --------- Federal taxable income...................................... $ 195 ========= Federal taxable income per limited partnership unit......... $5,217.57 =========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (451) Accumulated depreciation.................................... (1,895) Syndication costs........................................... 241 ------- Net liabilities -- tax basis................................ $(2,105) =======
NOTE G -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc. an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 4782 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEET -- UNAUDITED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS Cash and cash equivalents................................... $ 174 Receivables and deposits.................................... 39 Other assets................................................ 243 Loan costs, net of accumulated amortization of $63.......... 90 Apartment property, at cost (Notes C and D): Land...................................................... $ 535 Buildings and related personal property................... 5,147 ------- 5,682 Less accumulated depreciation............................. (2,619) 3,063 ------- ------ $3,609 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 27 Other liabilities......................................... 23 Mortgage notes payable (Notes C and D).................... 4,045 Tenant security deposits.................................. 30 ------ 4,125 Partners' deficit: Limited Partners (37 units issued and outstanding)........ $ (481) General Partner........................................... (35) (516) ------- ------ $3,609 ======
See accompanying notes. F-15 4783 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF OPERATIONS -- UNAUDITED YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,309 Other income.............................................. 73 ------- 1,382 Expenses: Interest.................................................. $374 Depreciation.............................................. 211 Operating................................................. 741 General and administrative................................ 13 Property taxes............................................ 69 1,408 ---- ------- ---- ------- Net loss.......................................... $ (26) ======= Net loss allocated to general partner (1%).................. $ -- Net loss allocated to limited partners (99%)................ (26) ======= $ (26) ======= Net loss per limited partnership unit............. $702.70 =======
See accompanying notes. F-16 4784 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- UNAUDITED (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- ----- Partners' deficit at December 31, 1995...................... $(35) $(455) $(490) Net loss.................................................. -- (26) (26) ---- ----- ----- Partners' deficit at December 31, 1996...................... $(35) $(481) $(516) ==== ===== =====
See accompanying notes. F-17 4785 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- UNAUDITED YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Operating activities Net loss.................................................. $ (26) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 211 Amortization of loan costs and discount................ 48 Changes in accounts: Receivable and deposits.............................. (5) Other assets......................................... 2 Accounts payable and other liabilities............... (4) Tenant security deposits............................. (2) ----- Net cash provided by operating activities......... 224 Investing activities Net, receipts from restricted escrows..................... 13 Property improvements and replacements.................... (153) ----- Net cash used in investing activities............. (149) Financing activities Payments on mortgage notes payable........................ (110) ----- Net decrease in cash...................................... (35) Cash at December 31, 1995................................. 209 ----- Cash at December 31, 1996................................. $ 174 ===== Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 326 =====
See accompanying notes. F-18 4786 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED DECEMBER 31, 1996 NOTE A -- ORGANIZATION Description of Partnership Sturbrook Investors, Ltd., a California limited partnership (the "partnership"), was formed in October 1981 to acquire and operate a 229 unit apartment complex in Richmond, Virginia. this property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of Sturbrook Investors, Inc., a California corporation (the "General partner"). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the General Partner and assumed role and obligations of the General Partner of the Partnership. Thirty-seven units of limited partnerships interest were issued. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partner or unless the Partners elect to continue the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partner and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To all partners until they have been allocated an amount attributable to the recapture of deductions taken that have been previously allocated to them with respect to assets sold. b. To all partners until they have been allocated sufficient income to recover any losses previously allocated to them. c. Any remaining income will be allocated so as to produce a 5:14 ratio between the aggregate positive adjusted capital account balances of the General Partner and the aggregate positive adjusted capital account balances of the Limited partners after accounting for the distributions described below. Cash Distributions Net cash from operations is to be distributed not less than quarterly and not later than ninety days after the end of fiscal quarter of the Partnership in the following order of priority: a. 1% to the General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). b. The remainder is allocated 25% to the General partner and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by F-19 4787 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In Addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the Tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. F-20 4788 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows CAPITAL IMPROVEMENT ACCOUNT At December 31, 1996, the balance remaining in the "capital improvement escrow" was approximately $8,000. Upon completion of the scheduled property improvements, any excess funds will be returned for property operations. RESERVE ACCOUNT In addition to the Capital Improvement Account, a general Reserve Account was established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until it equals $1,000 per apartment unit or $229,000 in total. The balance at December 31, 1996 is approximately $233,000, which includes interest. NOTE C -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND COST CAPITALIZED RELATED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITIONS - ----------- ------------ ---- ---------------- ---------------- Sturbrook Investors, Ltd................... $4,045 $535 $4,327 $820 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS - ----------- ---- ------------- ------ ------------ -------- ----------- Sturbrook Investors, Ltd......... $535 $5,147 $5,682 $2,619 11/81 5-30 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): F-21 4789 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) Investment Property Balance at beginning of year.............................. $5,529 Property improvements..................................... 153 ------ Balance at end of year.................................... $5,682 ====== Accumulated Depreciation Balance at beginning of year.............................. $2,408 Additions charged to expense.............................. 211 ------ Balance at end of year.................................... $2,619 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is approximately $5,682,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is approximately $4,643,000. NOTE D -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 consist of the following (in thousands): Mortgage payable to Bank of America, secured by a first deed of trust on the property. This note bears interest at 7.6% per annum. Principal and interest payments of $35 are payable monthly, with a balloon payment of $3,277 due on November 15, 2002......................................... $4,094 Mortgage payable to Bank of America, secured by a second deed of trust on the property. This note bears interest at 7.6% per annum. Interest only payments of $1 are payable monthly, with the principal and unpaid interest due on November 15, 2002......................................... 139 ------ 4,233 Less unamortized loan discounts............................. (188) ------ $4,045 ======
The discount is reflected as a reduction of the mortgage notes payable and increases to the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property and by pledge of revenues from the apartment property. Scheduled principal payments of mortgage notes payable subsequent to December 31, are as follows (in thousands): 1997........................................................ $ 119 1998........................................................ 128 1999........................................................ 138 2000........................................................ 149 2001........................................................ 160 Thereafter.................................................. 3,539 ------ $4,233 ======
F-22 4790 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- UNAUDITED -- (CONTINUED) NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. (Insignia) own the controlling ownership interest in the Partnership's General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $69 Reimbursements for General Partnership...................... $ 9
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. NOTE F -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ (26) Deduct: Depreciation differences.................................. (38) Federal Taxable loss........................................ $ (64) ========== Federal taxable loss per limited partnership unit........... $(1,712.43) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (516) Other liabilities........................................... (1) Accumulated depreciation.................................... (2,024) Syndication costs........................................... 241 ------- Net liabilities -- tax basis $(2,300) =======
NOTE G -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc. an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-23 4791 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 4792 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 4793 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 4794 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4795 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4796 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 4797 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 4798 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4799 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4800 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4801 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 4802 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 4803 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 4804 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 4805 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4806 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4807 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4808 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4809 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4810 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4811 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4812 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4813 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4814 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4815 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4816 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4817 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4818
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4819 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4820
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4821 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 4822 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 4823 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 4824
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 4825 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 4826 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 4827 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 4828
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 4829 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 4830 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 4831 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 4832 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 4833 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 4834 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 4835 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 4836 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 4837 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 4838 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 4839 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 4840 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 4841 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Sturbrook Investors Ltd. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Sturbrook Investors Ltd. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $48,611 in cash, or 1,256.50 Common OP Units of the Purchaser, or 1,944.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 4842 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 4843 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 4844 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 4845
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 4846
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 4847
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 4848
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 4849 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 4850 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Sycamore Creek Associates, L.P. in exchange for your choice of: 4.00 of our 8.0% Class Two Partnership Preferred Units; 2.75 of our Partnership Common Units; or $100 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $100 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 4851 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Sycamore Creek Associates, L.P...................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Redemption of Preferred Stock..... S-24 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25
PAGE ----- Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-25 Possible Increase in Control of Your Partnership by Us........................ S-25 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-26 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-28 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58 Proration.................................... S-59 Fractional OP Units.......................... S-59
i 4852
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4853 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In August 1997, an independent appraiser valued the property on an unencumbered basis to be $9,100,000. We estimate your property to be worth $8,581,000, less approximately $1,365,920 of deferred maintenance and investment. Therefore, it is possible S-1 4854 that the sale of the property could result in you receiving more per unit than in our offer and you would receive more than our offer if the property was actually sold for such appraised value. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. S-2 4855 OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-3 4856 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 4857 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 4858 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. S-6 4859 - Preferred Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $0 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-7 4860 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 4861 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We believe that if your partnership was liquidated there would be not enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. We determined your partnership's value as follows: Net operating income........................................ $ 901,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... $ 8,581,000 Plus: Cash and cash equivalents............................. 176,609 Plus: Other partnership assets, net of security deposits.... 482,074 Less: Mortgage debt, including accrued interest............. (7,610,802) Less: Accounts payable and accrued expenses................. (403,728) Less: Other liabilities..................................... (78,658) ----------- Partnership valuation before taxes and certain costs........ 1,146,495 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (1,365,920) Less: Closing costs......................................... (214,525) ----------- Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. 0.00% ----------- Estimated net valuation of units............................ 0 Total number of units............................. 46.0 ----------- Estimated valuation per unit................................ 0 =========== Cash consideration per unit................................. $ 0 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 4.00 Preferred OP Units per unit. S-9 4862 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; - the net book value of your partnership; and - recent appraisals for the property for $9,100,000, which appraisals did not take into account the mortgages, other assets and liabilities, costs of sale of the property and over $1,365,920 of deferred maintenance of the property. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 100 Partnership Preferred Units................................. $ 100 Partnership Common Units.................................... $ 100 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(75,395)
S-10 4863 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Sycamore Creek Associates, L.P. is a Delaware limited partnership which was formed on July 13, 1984 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Sycamore Creek Apartments." Sycamore Creek Apartments consists of 295 units and was built in 1979. Your partnership has no employees. As of September 30, 1998, there were 45.99 units of limited partnership interest issued and outstanding, which were held of record by 72 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Between January 1, 1993 and December 31, 1998 your partnership did not pay cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $7,095,303, payable to Marine Midland and Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $256,342, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 4864 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 4.00 of our Class Two Partnership Preferred Units; - 2.75 of our Partnership Common Units; or - $100 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 45.99 units of your partnership for consideration per unit of 4.00 Preferred OP Units, 2.75 Common OP Units, or $100 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May, 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 4865 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 4866 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $100 in cash, 4.00 Preferred OP Units or 2.75 Common OP Units. Both your units and the OP Units are S-14 4867 subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $100. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $39,548.64 for the fiscal year ended December 31, 1998. The property manager received management fees of $105,495 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,150 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 4868 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 4869
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 4870 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ 8,933 (11,831) Depreciation.............................................. (80,420) (98,853) --------- --------- 120,368 142,400 --------- --------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- --------- (913) (9,075) Minority interests in service company business............ -- (10) --------- --------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- --------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- --------- Net income........................................ $ 24,703 $ (36,125) ========= ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172.733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 4871
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 4872 SUMMARY FINANCIAL INFORMATION OF SYCAMORE CREEK ASSOCIATES, L.P. The summary financial information of Sycamore Creek Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Sycamore Creek Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." SYCAMORE CREEK ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues................ $1,534,326 $1,494,111 $2,188,188 $2,004,396 $1,945,886 $1,962,728 $1,949,820 Net Income/(Loss)............. 93,209 (24,234) 163,481 (46,944) (130,568) (166,329) (322,865) Net Income per limited partnership unit............ 2,006 (522) 3,518 (1,010) (2,810) (3,580) (6,949) Distributions per limited partnership unit............ -- -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital).................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 64,511 $ 81,573 $ 176,610 $ 26,198 $ 47,135 $ 154,046 $ 123,421 Real Estate, Net of Accumulated Depreciation... 3,652,983 3,503,005 3,742,574 3,520,681 3,615,857 3,784,245 4,133,574 Total Assets................. 4,117,498 3,990,610 4,514,857 4,461,521 4,314,024 4,598,813 4,847,640 Notes Payable................ 7,155,171 7,305,472 7,267,097 7,422,113 7,569,042 7,704,803 7,828,473 General Partners' Capital/ (Deficit).................... (3,374,190) (3,655,114) (3,467,399) (3,630,880) (3,583,936) (3,453,368) (3,287,039) Limited Partners' Capital/ (Deficit).................... -- -- -- -- -- -- -- Partners' Deficit.............. (3,374,190) (3,655,114) (3,467,399) (3,630,880) (3,583,936) (3,453,368) (3,287,039) Total Distributions............ -- -- -- -- -- -- -- Book value per limited partnership unit............. -- -- -- -- -- -- -- Net increase (decrease) in cash and cash equivalents......... (112,099) 55,375 150,412 (20,937) (106,911) 70,235 (78,015) Net cash provided by operating activities................... 112,078 173,659 288,307 255,429 -- -- -- Ratio of earnings to fixed charges...................... 1.19/1 0.95/1 1.25/1 0.93/1 0.81/1 0.76/1 0.53/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING SYCAMORE CREEK PARTNERSHIP ASSOCIATES, L.P. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $6.88 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $8.00 $0
S-20 4873 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 4874 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. In August 1997, an independent appraiser valued the properties on an unencumbered basis to be $9,100,000. We estimate your property to be worth $8,581,000 less approximately $1,365,920 of deferred maintenance. Therefore, it is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer and you would receive more than our offer if any of the property was actually sold for any of such estimated amounts. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could S-22 4875 be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 4876 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2008 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-24 4877 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-25 4878 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-26 4879 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.992% interest, consisting of a 0% limited partnership interest and a 0.992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-27 4880 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-28 4881 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from a loss of $24,234 for the nine months ended September 30, 1997, to a net income of $93,209 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. S-29 4882 In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $8.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. S-30 4883 - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $6.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous S-31 4884 given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location A (excellent) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined your partnership's value as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $901,057 10.50% $8,581,000
- --------------- (1) The total net operating income is equal to total revenues of $2,030,559, less total expenses of $1,041,002 and recurring replacement costs of $88,500. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of S-32 4885 your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $4,599. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. We believe that if your partnership was liquidated there would not be enough value to fully discharge all known liabilities. We have, however, decided to offer you $100 per unit. Net operating income........................................ 901,000 Capitalization rate......................................... 10.50% ---------- Gross valuation of partnership properties................... 8,581,000 Plus: Cash and cash equivalents............................. 176,609 Plus: Other partnership assets, net of security deposits.... 482,074 Less: Mortgage debt, including accrued interest............. (7,610,802) Less: Accounts payable and accrued expenses................. (403,728) Less: Other liabilities..................................... (78,658) ---------- Partnership valuation before taxes and certain costs........ 1,146,495 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (1,365,920) Less: Closing costs......................................... (214,525) ---------- Estimated net valuation of your partnership................. 0 Percentage of estimated net valuation allocated to holders of units.................................................. 0.00% Estimated net valuation of units............................ 0 Total number of units............................. 46.0 ---------- Estimated valuation per unit................................ 0 ========== Cash consideration per unit................................. 0 ==========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $100 by the $25 liquidation preference of each Preferred OP Unit to get 400 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $100 by a price of $38.69 to get 2.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $0 or 0.00% is the net valuation of your partnership. S-33 4886 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from a loss of $24,234 for the nine months ended September 30, 1997 to a net income of $93,209 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-34 4887 11. The estimated unit value of $100, based on a total estimated value of your partnership's property of $8,581,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $8.00 per year on the number of Preferred OP Units, or distributions of $6.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-35 4888 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 4889 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 100 Partnership preferred units................................. $ 100(1) Partnership common units.................................... $ 100(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 100 Estimated going concern value............................. $ 0 Net book value (deficit).................................. $(75,395)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Appraisals Your partnership's property was appraised in 1997 by an independent third party appraiser, R.A. Jackson Appraisal Co., Inc. (the "Appraiser"), in connection with a hearing before the Hamilton County Board of Revisions not in connection with the offer. According to the appraisal reports, the scope of the appraisals included an inspection of the property and an analysis of the surrounding market. The Appraiser relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach and cost appraisal, and represented that its report was prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice. The estimated market value of the fee simple estate specified in the report was 9,100,000. The total appraised value of the property is $9,100,000 and was not brought down to a per unit basis by us since such appraisal does not reflect the mortgage encumbering the property of $7,480,000 (including interest), other assets and liabilities of the partnership or any costs of sales of the property as reflected in "Valuation of Units." However, using the appraisal amount instead of the "estimated gross valuation of your partnership's property" in the table in the "Valuation of Units" would result in a higher amount per unit than our offer. Previously, an affiliate of your general partner relied on such appraisal amounts to prepare for a hearing before the Hamilton County Board of Revision. S-37 4890 We believe that, based on the condition of the property, the appraisals substantially overstate its value. The appraisals did not take into account the deferred maintenance costs of the partnership's property. Therefore, we believe that the appraisals are less meaningful in assessing the fairness of our offer consideration than the analysis described above under "Valuation of Units." On this basis, we believe that our offer consideration is fair in relation to such appraisal amounts. The Appraiser performed the real estate appraisals in the normal course of its business and the executive officers who rendered the report are members of the Appraisal Institute. The Appraiser was paid $ for the [1997] appraisals and also appraised the [property] in 199 and has conducted other appraisals of [property] held by our affiliates. No limitations were imposed on the Appraiser by the general partner. A copy of the appraisals may be obtained by contacting the Information Agent at the address and telephone numbers set forth on the back cover page of this Prospectus Supplement. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 40%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. S-38 4891 The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $0 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $75,395 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $0 per unit, going concern value of $0 per unit and liquidation value of $0 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents discounts to the offer price of $100, $100 and $100. In light of these discounts and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 96.05% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-39 4892 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general S-40 4893 market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SYCAMORE CREEK -------------- Total Revenues.............................................. $ 2,237,488 Operating Expenses.......................................... (1,062,243) Replacement Reserves -- Net................................. (373,264) Debt Service................................................ (804,492) Capital Expenditures........................................ (24,500) ----------- Net Cash Flow..................................... $ (27,011) ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. S-41 4894 Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $1,365,920. Stanger observed that your partnership liquidation value was negative and a minimum per unit price of $100 was used. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $901,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $3,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 40%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was negative and therefore deemed 0. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. S-42 4895 Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $100 per unit is equal to management's minimum value, and reflects a 100% premium to management's estimate of going concern value of 0. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive 0.6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 40% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 40% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately more than 80% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $0, $0 and $0 representing discounts to the offer price of $100. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." REVIEW OF APPRAISAL Stanger observed that an appraisal was prepared as of January 1, 1996 by R. A. Jackson Appraisal Co., Inc. on the property. The date of the appraisal is August 29, 1997. The appraisal was prepared in connection with a hearing before the Hamilton County Board of Revision. Stanger observed that the appraiser considered the income sales comparison appraisal and cost appraisal in deriving an estimate of value. The S-43 4896 concluded value was $9,100,000. Stanger observed that the appraiser relied primarily on the income appraisal wherein a net operating income before real estate taxes was estimated at $1,035,000 and real estates taxes were estimated at $178,000. The resulting estimated net operating income was $857,000 which the appraiser capitalized at a capitalization rate of 9.5%. Stanger further observed that the appraiser estimated replacement revenue at $175,000 per annum ($593 per unit) in the determination. Stanger observed that the annualized nine month net operating income from the property before replacement reserve was approximately $1,037,000 and $862,000 after the $175,000 replacement reserve and as such has been relatively flat in terms of growth as compared to the 1996 estimate of net operating income contained in the appraisal. Stanger noted that the appraisal identified four sale comparables with values per unit ranging from $23,000 to $28,000 and averaging approximately $29,000. Stanger noted that the average capitalization rate of the four comparable sales use 10.18%. Stanger observed that the gross property value calculated by AIMCO for the property was $8,581,000 and that such value calculation resulted in a negative partnership value of $433,950 and that the value of the property would need to exceed approximately $9,020,000 before an amount in excess of the $100 per unit value of your partnership would be exceeded. Stanger noted that the $902,000 amount described above is .8% less than the appraisal. Stanger advised AIMCO that Stanger considered the appraisal in connection with preparing the Fairness Opinion. CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and S-44 4897 the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-45 4898 YOUR PARTNERSHIP GENERAL Sycamore Creek Associates, L.P., is a Delaware limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in October 1998. AIMCO acquired Insignia in October 1998. There are currently a total of 72 limited partners of your partnership and a total of 45.99 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the [property] described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 13, 1984 for the purpose of owning an apartment property located in Cincinnati, Ohio, known as "Sycamore Creek Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1979 and consists of 295 apartment units. Your partnership's property had an average occupancy rate of approximately 89.52%, in 1998, 89.15% in 1997 and 89.15% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations for 1999 total $1,365,920 and are intended to be paid for out of cash flow or borrowings. Renovation items include gutters and downspouts, siding/trim/soffits/facia, exterior paint, balconies, sidewalks, windows, and drainage. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $530 $526 $513 $514 $519
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $209,939 of $3,304,000 of assessed valuation with a current yearly tax rate of 6.35%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 6.67% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-46 4899 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 90% and $530, respectively, at December 31, 1998, compared to 92% and $494, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects to remain strong in the near future because of the property's location in a desirable location in greater Cincinnati. In addition, the general partner noted that it expects to spend approximately $1,365,920 for capital expenditures and capital improvements at the property in 1999 to update and improve the property's balconies, paving, windows, landscaping, drainage, and other areas. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. the general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $7,095,303, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $256,342, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the S-47 4900 general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the one property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner will not incur any liability to your partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited partnership. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions From 1993 through 1998, your partnership has paid no distributions. S-48 4901 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows: BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 0.992% interest in your partnership, including the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $54,502 1995........................................................ 47,090 1996........................................................ 71,297 1997........................................................ 72,266 1998........................................................ 39,549
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1994........................................................ $ 98,775 1995........................................................ 97,108 1996........................................................ 99,666 1997........................................................ 101,578 1998........................................................ 105,495
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 4902 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SYCAMORE CREEK ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 64,511 $ 81,573 $ 176,610 $ 26,198 $ 47,135 $ 195,548 $ 123,421 Land & Building............... 10,817,378 10,457,015 10,749,179 10,316,901 10,222,790 10,137,293 10,198,903 Accumulated Depreciation...... (7,164,395) (6,954,010) (7,006,605) (6,796,220) (6,606,933) (6,353,048) (6,065,329) Other Assets.................. 400,004 406,032 595,673 914,642 651,032 619,020 530,645 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 4,117,498 $ 3,990,610 $ 4,514,857 $ 4,461,521 $ 4,314,024 $ 4,598,813 $ 4,847,640 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 7,155,171 $ 7,305,472 $ 7,261,097 $ 7,422,113 $ 7,569,042 $ 7,704,803 $ 7,828,473 Other Liabilities............. 336,517 340,252 721,159 670,288 328,918 347,376 306,206 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 7,491,688 $ 7,645,724 $ 7,962,256 $ 8,092,401 $ 7,897,960 $ 8,052,181 $ 8,134,679 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit...... $(3,374,190) $(3,655,114) $(3,457,399) $(3,630,880) $(3,583,936) $(3,453,368) $(3,287,039) =========== =========== =========== =========== =========== =========== ===========
SYCAMORE CREEK ASSOCIATES, L.P. ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $1,415,048 $1,374,745 $1,877,740 $1,863,228 $1,816,137 $1,819,632 $1,837,519 Other Income................... 119,278 119,366 310,448 141,168 129,749 143,096 112,301 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $1,534,326 $1,494,111 $2,188,188 $2,004,396 $1,945,886 $1,962,728 $1,949,820 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 593,671 $ 676,958 $ 902,610 $ 923,126 $ 882,490 $ 790,832 $ 748,845 General & Administrative....... 50,566 39,919 57,254 60,560 55,031 44,641 65,534 Depreciation................... 157,790 157,790 210,385 189,287 253,885 399,629 580,231 Interest Expense............... 496,760 502,796 666,616 679,466 691,871 703,410 692,298 Property Taxes................. 142,130 140,882 187,842 198,901 193,177 190,545 185,777 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $1,441,117 $1,518,345 $2,024,707 $2,051,340 $2,076,454 $2,129,057 $2,272,685 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income before extraordinary items........................ $ 93,209 $ (24,234) $ 163,481 $ (46,944) $ (130,568) $ (166,329) $ (322,865) Extraordinary Items............ -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).............. $ 93,209 $ (24,234) $ 163,481 $ (46,944) $ (130,568) $ (168,329) $ (322,865) ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 2,006 $ (522) $ 3,518 $ (1,010) $ (2,810) $ (3,580) $ (6,949) ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
S-50 4903 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Net Income Your Partnership recognized net income of $93,000 for the nine months ended September 30, 1998, compared to a net loss of $24,000 for the nine months ended September 30, 1997. The increase in net income of $117,000 was primarily the result of an increase in revenues, coupled with a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the Partnership Property totaled $1,534,000 for the nine months ended September 30, 1998, compared to $1,494,000 for the nine months ended September 30, 1997, an increase of $40,000, or 2.7%. The Partnership increased rental rates by an average of 3.9%. However, this was offset by a decrease in occupancy of 1% to 90%. Other income was $119,000 for both periods. Expenses Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $594,000 for the nine months ended September 30, 1998, compared to $677,000 for the nine months ended September 30, 1997, a decrease of $83,000, or 12.3%. The decrease is due to lower property maintenance expenses as the Partnership incurred higher interior building improvements and interior painting costs during 1997 as compared to 1998. Partnership Property management expenses was $79,000 for the nine months ended September 30, 1998, compared to $75,000 for the nine months ended September 30, 1997, an increase of $4,000. This increase is due to the increase in revenues as management fees are paid based on rental revenues. General and administrative expenses increased $11,000 to $51,000, due primarily to higher partnership administrative and asset management fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $497,000 for the nine months ended September 30, 1998, compared to $503,000 for the nine months ended September 30, 1997, a decrease of $6,000, or 1.2%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 Net Income Your partnership recognized net income of $163,481 for the year ended December 31, 1997, compared to a net loss of $46,944 for the year ended December 31, 1996. The increase in net income of $210,425 was primarily the result of a casualty gain of $147,000 incurred due to two fires in the clubhouse and a flood. There was also an increase in total revenue and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,041,188 for the year ended December 31, 1997, compared to $2,004,396 for the year ended December 31, 1996, an increase of $36,791, or 1.8%. In the current year, the market rent increased approximately 3% while occupancy remained flat, resulting in approximately $15,000 of the increase. Additionally, Laundry income increased $24,000. S-51 4904 Cleaning and Damage Fees increased $3,000 and legal fees increased by $3,000 which was partially offset by a decrease in Lease cancellation fees of $9,000. Expenses Operating expenses consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $902,610 for the year ended December 31, 1997, compared to $923,126 for the year ended December 31, 1996, a decrease of $20,516 or 2.2%. The decrease is due roof repairs in the amount of $33,000 and plumbing supplies in the amount of $15,000. These decreases are offset by increases in periodicals of $11,000, special promotions of $7,000, and incentives increased of $6,000. Management expenses totaled $101,578 for the year ended December 31, 1997 compared to $99,666 for the year ended December 31, 1996, an increase of $1,912, or 1.9%. General and Administrative Expenses General and administrative expenses totaled $57,254 for the year ended December 31, 1997 compared to $60,560 for the year ended December 31, 1996, a decrease of $3,306 or 5.5%. The decrease is primarily due to a decrease in contracted service fees. A decrease in contract painting was partially offset by an increase in contract trash and contract yard. Depreciation Expense Depreciation expense increased approximately $21,000 due to an increase in fixed assets of $432,000. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $666,616 for the year ended December 31, 1997, compared to $679,466 for the year ended December 31, 1996, a decrease of $12,850, or 1.9%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995 Net Income Your partnership recognized a net loss of $46,944 for the year ended December 31, 1996, compared to a net loss of $130,568 for the year ended December 31, 1995. The decrease in net loss of $83,624, or 64.1% was primarily the result of a decrease in depreciation expense due to 10 year property becoming fully depreciated in 1995, coupled with an increase in total revenue, offset by an increase in operating expenses. These factors will be discussed further in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,004,396 for the year ended December 31, 1996, compared to $1,945,886 for the year ended December 31, 1995, an increase of $58,510, or 3.0%. The market rent in the current year increased approximately 3% over the prior year, which was offset by the decrease in occupancy rates of approximately 4% over the prior year. Additionally, the increase can be attributed to increases in laundry income and late charges. Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $923,126 for the year ended December 31, 1996, compared to $882,490 for the year ended December 31, 1995, an increase of $40,636 or 4.6% Management expenses totaled $99,666 for the year ended December 31, 1996, compared to $97,108 for the year ended December 31, 1995, an increase of $2,558, or 2.6%. The remaining S-52 4905 increase is primarily due to net insurance issues of $20,000 an increase in gutter repairs of $14,000, and an increase in plumbing expenses of $6,000, which are offset partially by swimming pool repairs of $10,000. General and Administrative Expenses General and administrative expenses totaled $60,560 for the year ended December 31, 1996 compared to $55,031 for the year ended December 31, 1995, an increase of $5,529 or 10.0%. The increase is primarily due to a general increase in various administrative expenses. Depreciation Expense Depreciation expense decreased by $64,598 due to a large asset becoming fully depreciated in the prior year. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $679,466 for the year ended December 31, 1996, compared to $691,871 for the year ended December 31, 1995, a decrease of $12,405, or 1.8%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Liquidity and Capital Resources As of September 30, 1998, your Partnership had $64,511 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $798,207, was $7,353,378. The mortgages require monthly payments of approximately $65,417 until November 2002. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 4906 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 45.99 units of your partnership (up to 11.50 units) for consideration per unit of (i) 4.00 Preferred OP Units, (ii) 2.75 Common OP Units, or (iii) $100 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 4907 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 4908 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 4909 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 4910 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 4911 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 4912 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 4913 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 4914 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 4915 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 4916 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were heard on February 8, 1999, but no decision has been reached by the Court. S-64 4917 While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 4918 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 4919 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 4920 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 4921 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 4922 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 4923 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Distributable Cash (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2008. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating develop, operate, lease, manage and hold for Partnership is to conduct any business that investment and the production of income your may be lawfully conducted by a limited partnership's property. Subject to partnership organized pursuant to the restrictions contained in your partnership's Delaware Revised Uniform Limited Part- agreement of limited partnership, your nership Act (as amended from time to time, partnership may perform all acts necessary or any successor to such statute) (the or appropriate in connection therewith and "Delaware Limited Partnership Act"), reasonably related thereto, including provided that such business is to be acquiring additional real or personal conducted in a manner that permits AIMCO to property, borrowing money and creating be qualified as a REIT, unless AIMCO ceases liens. to qualify as a REIT. The AIMCO Operating Partner-
S-71 4924 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit up to 35 additional limited partnership purpose from time to time to the partners by selling not more than 46 units limited partners and to other persons, and for cash and notes to selected persons who to admit such other persons as additional fulfill the requirements set forth in your limited partners, on terms and conditions partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners. Upon sole discretion. The net capital admission of such limited partners, an contribution need not be equal for all OP amendment to the Certificate of your Unitholders. No action or consent by the OP partnership shall be executed and Unitholders is required in connection with acknowledged by the general partner, the the admission of any additional OP original limited partner and by the general Unitholder. See "Description of OP partner as attorney-in-fact for the Units -- Management by the AIMCO GP" in the additional limited partners. accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
S-72 4925 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, the general partner is contribute funds or other assets to its authorized in connection with the management subsidiaries or other persons in which it of your partnership to acquire goods from, has an equity investment, and such persons or utilize the services of, firms and may borrow funds from the AIMCO Operating persons affiliated with the general partner Partnership, on terms and conditions in performing its duties and established in the sole and absolute responsibilities under your partnership's discretion of the general partner. To the agreement of limited partnership; provided extent consistent with the business purpose that terms and conditions of such dealings of the AIMCO Operating Partnership and the are as favorable as could be reasonably permitted activities of the general partner, obtained from third parties offering similar the AIMCO Operating Partnership may transfer goods and services of similar quality and assets to joint ventures, limited liability reliability. In the event the general companies, partnerships, corporations, partner determines that funds are reasonably business trusts or other business entities necessary for acquiring or maintaining and in which it is or thereby becomes a protecting the property of your partnership participant upon such terms and subject to on commercially reasonable terms from one or such conditions consistent with the AIMCO more of the partners without notification to Operating Partnership Agreement and ap- any of the other partners, and all or a plicable law as the general partner, in its portion of your partnership's property may sole and absolute discretion, believes to be be conveyed as security for any advisable. Except as expressly permitted by indebtedness, provided, however, that the the AIMCO Operating Partnership Agreement, borrowing from limited partners will be neither the general partner nor any of its undertaken only to the extent allowed by affiliates may sell, transfer or convey any applicable law. The time and amounts of property to the AIMCO Operating Partnership, repayment for such loans will be in the sole directly or indirectly, except pursuant to discretion of the general partner and transactions that are determined by the payments of principal and interest will be general partner in good faith to be fair and fully paid prior to any distribution of reasonable. funds to the partners unless such loans contain a specific provision to the contrary. The partner who lends money to your partnership will be considered an unrelated creditor with respect to such loans to the extent allowed by applicable law. Any loans from the general partner or its affiliates will accrue interest at the greater of 2 1/2% over the prime interest rate charged by the Third National Bank in Nashville, adjusted monthly, or the general partner's or its affiliate's actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in the ordinary contains no restrictions on borrowings, and course of business and as security therefore the general partner has full power and to mortgage all or any part of the real authority to borrow money on behalf of the property of your partnership in addition to AIMCO Operating Partnership. The AIMCO obtaining loans specifically provided for in Operating Partnership has credit agreements your partnership's agreement of limited that restrict, among other things, its partnership. Your partnership may also sell ability to incur indebtedness. up to $40,000 of mortgage-backed bonds.
S-73 4926 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and addresses of all limited partners at all Unitholder's own expense, to obtain a reasonable times at the principal office of current list of the name and last known your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth under All management powers over the business and applicable law and the terms of your affairs of the AIMCO Operating Partnership partnership's agreement of limited are vested in AIMCO-GP, Inc., which is the partnership, the general partner of your general partner. No OP Unitholder has any partnership has the power to do all things right to participate in or exercise control set forth in your partnership's agreement of or management power over the business and limited partnership. The general partner affairs of the AIMCO Operating Partner- represents your partnership in all ship. The OP Unitholders have the right to transactions with third parties. No limited vote on certain matters described under partner has any right or power to take part "Comparison of Your Units and AIMCO OP in any way in the management of your Units -- Voting Rights" below. The general partnership business except as may be partner may not be removed by the OP expressly provided in your partnership's Unitholders with or without cause. agreement of limited partnership or by applicable statutes. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner forth in the AIMCO Operating Partnership will not incur any liabil- Agreement, the
S-74 4927 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ity to your partnership or any other partner general partner is not liable to the AIMCO for any mistakes or errors in judgment or Operating Partnership for losses sustained, for any act or omission believed by it in liabilities incurred or benefits not derived good faith to be within the scope of as a result of errors in judgment or authority conferred upon it by your partner- mistakes of fact or law of any act or ship's agreement of limited partnership. In omission if the general partner acted in addition, your partnership will, to the good faith. The AIMCO Operating Partnership extent permitted by law, indemnify and save Agreement provides for indemnification of harmless the general partner against and AIMCO, or any director or officer of AIMCO from any personal loss, liability (includ- (in its capacity as the previous general ing attorneys' fees) or damage incurred by partner of the AIMCO Operating Partner- it as the result of any act or omission in ship), the general partner, any officer or its capacity as general partner unless such director of general partner or the AIMCO loss, liability or damage results from gross Operating Partnership and such other persons negligence or willful misconduct of the as the general partner may designate from general partner. and against all losses, claims, damages, liabilities, joint or several, expenses (in- cluding legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause the business and affairs of the AIMCO following written notice to the general Operating Partnership. The general partner partner and a failure to cure the injury to may not be removed as general partner of the your partnership upon a vote of the limited AIMCO Operating Partnership by the OP partners owning a 51% of the outstanding Unitholders with or without cause. Under the units. A general partner may not resign AIMCO Operating Partnership Agreement, the without the consent of those persons owning general partner may, in its sole discretion, 51% of the units. Such consent is also prevent a transferee of an OP Unit from necessary for the approval of a new general becoming a substituted limited partner partner. A limited partner may not transfer pursuant to the AIMCO Operating Partnership his interests without the written consent of Agreement. The general partner may exercise the general partners which may be withheld this right of approval to deter, delay or at the sole discretion of the general hamper attempts by persons to acquire a partners. controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of
S-75 4928 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Limited partners owning 51% of the units may With the exception of certain circumstances amend your partnership's agreement of set forth in the AIMCO Operating Partnership limited partnership, except that any Agreement, whereby the general partner may, amendment which adversely affects a limited without the consent of the OP Unitholders, partner's interest in your partnership's amend the AIMCO Operating Partnership capital, profits or Distributable Cash must Agreement, amendments to the AIMCO Operating be approved by such limited partner. On its Partnership Agreement require the consent of own motion or the written request of the the holders of a majority of the outstanding limited partner owning at least 10% of the Common OP Units, excluding AIMCO and certain units, the general partner will submit the other limited exclusions (a "Majority in proposed amendment to the limited partner Interest"). Amendments to the AIMCO together with its recommendation as to such Operating Partnership Agreement may be proposal. The general partner may require a proposed by the general partner or by response within a specified time, but not holders of a Majority in Interest. Following less than thirty days and failure to respond such proposal, the general partner will in such time will constitute a vote which is submit any proposed amendment to the OP consistent with the recommendation of the Unitholders. The general partner will seek limited partners. the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner but may receive fees for additional Operating Partnership. In addition, the services. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the liability of each gross negligence, no OP Unitholder has of the limited partners for its share of the personal liability for the AIMCO Operating losses or debts of your partnership is Partnership's debts and obligations, and limited to the total capital contribution of liability of the OP Unitholders for the such limited partner plus, to the extent AIMCO Operating Partnership's debts and that such limited partner has rightfully obligations is generally limited to the received the return of such capital amount of their investment in the AIMCO contribution, any sum, not in excess of such Operating Partnership.
S-76 4929 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP return, necessary to discharge liabilities However, the limitations on the liability of of your partnership to all creditors who limited partners for the obligations of a extended credit before such return; provided limited partnership have not been clearly that the liability with respect to established in some states. If it were rightfully returned capital contributions is determined that the AIMCO Operating Part- limited to one year from the date of such nership had been conducting business in any return. Notwithstanding the foregoing, the state without compliance with the applicable original limited partner only maybe subject limited partnership statute, or that the to a mandatory assessment of an amount not right or the exercise of the right by the exceeding 50% of its total capital contri- holders of OP Units as a group to make bution as provided in your partnership's certain amendments to the AIMCO Operating agreement of limited partnership. Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must act as a fiduciary with respect of the generally requires a general partner of a assets and business of your partnership. The Delaware limited partnership to adhere to general partner must use its best efforts to fiduciary duty standards under which it owes do all things and perform such duties as may its limited partners the highest duties of be reasonably necessary to the successful good faith, fairness and loyalty and which operation of your partnership. The general generally prohibit such general partner from partner must devote such of its time and taking any action or engaging in any that of its employees to your partnership transaction as to which it has a conflict of business as may be reasonably necessary to interest. The AIMCO Operating Partnership carry on and conduct your partnership's Agreement expressly authorizes the general business. However, except as specifically partner to enter into, on behalf of the provided in your partnership, the partners AIMCO Operating Partnership, a right of may engage in whatever activities they first opportunity arrangement and other choose, whether the same be competitive with conflict avoidance agreements with various your partnership or otherwise, including affiliates of the AIMCO Operating without limitation, the acquisition, owner- Partnership and the general partner, on such ship, financing, syndication, development, terms as the general partner, in its sole improvement, leasing, operation, management and absolute discretion, believes are and brokerage of real property (including advisable. The AIMCO Operating Partnership real property that may be in the vicinity of Agreement expressly limits the liability of and competitive with real property owned by the general partner by providing that the your partnership), without having or general partner, and its officers and incurring any obligation to disclose or to directors will not be liable or accountable offer any interest in such activities to any in damages to the AIMCO Operating party to your partnership's agreement of Partnership, the limited partners or as- limited partnership. signees for errors in judgment or mistakes of fact or law or of any act or omission if In general, your partnership's agreement of the general partner or such director or limited partnership and the AIMCO Operating officer acted in good faith. See Partnership Agreement have limitations on "Description of OP Units -- Fiduciary the liability of the general partner but Responsibilities" in the accompanying such limitations differ and provide more Prospectus. protection for the general partner of the AIMCO Operating Partnership.
S-77 4930 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-78 4931 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a 51% of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agree- Units. See "Description of Operating Partnership ment of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your part- outstanding, in addition to proceedings, an assignment nership; remove a general any other vote or consent of for the benefit of creditors partner for cause, approve partners required by law or and certain transfers by the the retirement of a general by the AIMCO Operating general partner of its partner, approve the Partnership Agreement, the interest in the AIMCO admission of a new general affirmative vote or consent Operating Partnership or the partner; and approve or of holders of at least 50% admission of a successor disapprove the sale of all of the outstanding Preferred general partner. or a material portion of OP Units will be necessary your partnership's prop- for effecting any amendment Under the AIMCO Operating erty. A general partner may of any of the provisions of Partnership Agreement, the cause the dissolution of the Partnership Unit general partner has the your partnership by Designation of the Preferred power to effect the retiring. In such event, the OP Units that materially and acquisition, sale, transfer, limited partners holding 51% adversely affects the rights exchange or other of the aggregate units may, or preferences of the disposition of any assets of within ninety days of such holders of the Preferred OP the AIMCO Operating occurrence, vote to continue Units. The creation Partnership (including, but the business of your not limited to, the exercise partnership. If no general or partner remains in office, all of
S-79 4932 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the limited partners may or issuance of any class or grant of any conversion, elect to reform your series of partnership units, option, privilege or partnership and elect a including, without subscription right or any successor general partner limitation, any partner- other right available in whereupon your partnership ship units that may have connection with any assets will be dissolved and all of rights senior or superior to at any time held by the the assets and liabilities the Preferred OP Units, AIMCO Operating Partnership) of your partnership will be shall not be deemed to or the merger, contributed to a new part- materially adversely affect consolidation, nership and all parties to the rights or preferences of reorganization or other your partnership's agreement the holders of Preferred OP combination of the AIMCO of limited partnership will Units. With respect to the Operating Partnership with become parties to such new exercise of the above or into another entity, all partnership. described voting rights, without the consent of the each Preferred OP Units OP Unitholders. In general, you have greater shall have one (1) vote per voting rights in your Preferred OP Unit. The general partner may partnership than you will cause the dissolution of the have as an OP Unitholder. OP AIMCO Operating Partnership Unitholders can not remove by an "event of withdrawal," the general partner of the as defined in the Delaware AIMCO Operating Partner- Limited Partnership Act ship. (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to refinancing, is to be Operating Partner-
S-80 4933
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS shared among the partners. ship, quarterly cash cause the AIMCO Operating Distributions from distributions at the rate of Partnership to distribute Distributable Cash will be $0.50 per Preferred OP Unit; quarterly all, or such made quarterly, on or about provided, however, that at portion as the general January 15, April 15, July any time and from time to partner may in its sole and 15 and October 15 for each time on or after the fifth absolute discretion fiscal year, or for such anniversary of the issue determine, of Available Cash shorter period as may be date of the Preferred OP (as defined in the AIMCO applicable. The Units, the AIMCO Operating Operating Partnership distributions payable to the Partnership may adjust the Agreement) generated by the partners are not fixed in annual distribution rate on AIMCO Operating Partnership amount and depend upon the the Preferred OP Units to during such quarter to the operating results and net the lower of (i) 2.00% plus general partner, the special sales or refinancing pro- the annual interest rate limited partner and the ceeds available from the then applicable to U.S. holders of Common OP Units disposition of your Treasury notes with a on the record date es- partnership's assets. Your maturity of five years, and tablished by the general partnership has not made (ii) the annual dividend partner with respect to such distributions in the past rate on the most recently quarter, in accordance with and is not projected to make issued AIMCO non-convertible their respective interests distributions in 1998. In preferred stock which ranks in the AIMCO Operating general, you have greater on a parity with its Class H Partnership on such record voting rights in your Cumulative Preferred Stock. date. Holders of any other partnership than you will Such distributions will be Preferred OP Units issued in have as an OP Unitholder. OP cumulative from the date of the future may have priority Unitholders cannot remove original issue. Holders of over the general partner, the general partner of the Preferred OP Units will not the special limited partner AIMCO Operating Partnership. be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the AIMCO Operating Partnership and no other dis-
S-81 4934 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tribution of cash or other (i) satisfy the requirements property may be declared or for qualifying as a REIT made, directly or under the Code and the indirectly, by the AIMCO Treasury Regulations and Operating Partnership with (ii) avoid any Federal respect to any Junior Units income or excise tax (as defined below), nor liability of AIMCO. See shall any Junior Units be "Description of OP redeemed, purchased or Units -- Distributions" in otherwise acquired for the accompanying Prospectus. consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such person will and the Preferred OP Units Operating Partnership become a substitute limited are not listed on any Agreement restricts the partner if: (1) a written securities exchange. The transferability of the OP assignment has been duly Preferred OP Units are Units. Until the expiration executed and acknowledged by subject to restrictions on of one year from the date on the assignor and assignee transfer as set forth in the which an OP Unitholder and delivered to the general AIMCO Operating Partnership acquired OP Units, subject partner, (2) the approval of Agreement. to certain exceptions, such the general partner which OP Unitholder may not may be withheld in the sole Pursuant to the AIMCO transfer all or any por- discretion and which will be Operating Partnership tion of its OP Units to any withheld if the general Agreement, until the transferee without the partner reasonably believes expiration of one year from consent of the general that the transfer violates the date on which a holder partner, which consent may applicable securities law or of Preferred OP Units be withheld in its sole and result in adverse tax acquired Preferred OP Units, absolute discretion. After consequences, including the subject to certain the expiration of one year, termination of your exceptions, such holder of such OP Unitholder has the partnership for tax Preferred OP Units may not right to transfer all or any purposes, (3) the assignee transfer all or any portion portion of its OP Units to has agreed to bound by all of its Preferred OP Units to any person, subject to the of the terms of your any transferee without the satisfaction of certain con- partnership's agreement of consent of the general ditions specified in the limited partnership and partner, which consent may AIMCO Operating Partnership absolute discretion of the be withheld in its sole and Agreement, including the general partner has been absolute discretion. After general partner's right of granted, (4) the assignee the expiration of one year, first refusal. See represents he is at least 18 such holders of Preferred OP "Description of OP Units -- years of age, is a citizen Units has the right to Transfers and Withdrawals" and resident of the U.S., transfer all or any portion in the accompanying has sufficient financial of its Preferred OP Units to Prospectus. resources to maintain the any person, subject to the After the first anniversary interest acquired and that satisfaction of certain of becoming a holder of he is not acquiring the conditions specified in the Common OP Units, an OP interest with a view to AIMCO Operating Partner- Unitholder has the right, resell the interest and (5) ship Agreement, including subject to the terms and the assignor and assignee the general partner's right conditions of the AIMCO have complied with such of first refusal. Operating Partnership other conditions as set Agreement, to forth in your
S-82 4935 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership's agreement of After a one-year holding require the AIMCO Operating limited partnership. period, a holder may redeem Partnership to redeem all or Preferred OP Units and a portion of the Common OP There are no redemption receive in exchange Units held by such party in rights associated with your therefor, at the AIMCO Oper- exchange for a cash amount units. ating Partnership's option, based on the value of shares (i) subject to the terms of of Class A Common Stock. See any Senior Units (as defined "Description of OP below), cash in an amount Units -- Redemption Rights" equal to the Liquidation in the accompanying Preference of the Preferred Prospectus. Upon receipt of OP Units tendered for a notice of redemption, the redemption, (ii) a number of AIMCO Operating Partnership shares of Class A Common may, in its sole and Stock of AIMCO that is equal absolute discretion but in Value to the Liquidation subject to the restrictions Preference of the Preferred on the ownership of Class A OP Units tendered for Common Stock imposed under redemption, or (iii) for AIMCO's charter and the Preferred OP Units redeemed transfer restrictions and after a two-year holding other limitations thereof, period, a number of shares elect to cause AIMCO to of Class I Preferred Stock acquire some or all of the of AIMCO that pay an tendered Common OP Units in aggregate amount of exchange for Class A Common dividends equivalent to the Stock, based on an exchange distributions on the ratio of one share of Class Preferred OP Units tendered A Common Stock for each Com- for redemption; provided mon OP Unit, subject to that such shares are part of adjustment as provided in a class or series of the AIMCO Operating preferred stock that is then Partnership Agreement. listed on the NYSE or an- other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 4936 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 4937 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 4938 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 4939 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 4940 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 4941 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 4942 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 4943 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 4944 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 4945 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The property manager received management fees of $99,666 in 1996, $101,578 in 1997 and $105,495 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 4946 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,150 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate; at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 4947 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 4948 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors Report................................. F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors Report................................. F-15 Balance Sheets as of December 31, 1995 and 1994............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1995 and 1994............ F-17 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-18 Notes to Financial Statements............................... F-19
F-1 4949 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 64,511 Receivables and deposits.................................... 110,577 Restricted escrows.......................................... 193,036 Other assets................................................ 96,391 Investment property Land...................................................... $ 950,000 Building and related personal property.................... 9,867,378 ----------- 10,817,378 ----------- Less: Accumulated depreciation............................ (7,164,395) 3,652,983 ----------- ----------- Total assets...................................... $ 4,117,498 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 71,321 Other accrued liabilities................................... 51,773 Property taxes payable...................................... 157,407 Tenant security deposits.................................... 56,016 Notes payable............................................... 7,155,171 Partners' deficit................................. (3,374,190) ----------- Total liabilities and partners' deficit........... $ 4,117,498 ----------- -----------
See accompanying notes to financial statements. F-2 4950 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $1,415,048 $1,374,745 Other income.............................................. 119,278 119,366 ---------- ---------- Total revenues.................................... 1,534,326 1,494,111 Expenses: Operating expenses........................................ 593,871 676,958 General and administrative expenses....................... 50,566 39,919 Depreciation expense...................................... 157,790 157,790 Interest expense.......................................... 496,760 502,796 Property tax expense...................................... 142,130 140,882 ---------- ---------- Total expenses.................................... 1,441,117 1,518,345 Net income (loss)................................. $ 93,209 $ (24,234) ========== ==========
See accompanying notes to financial statements. F-3 4951 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- Operating activities: Net income (loss)......................................... $ 93,209 $ (24,234) Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 240,047 233,370 Changes in accounts: Receivables and deposits and other assets.............. 171,399 315,848 Accounts payable and accrued expenses.................. (392,577) (351,325) --------- --------- Net cash provided by (used in) operating activities...................................... 112,078 173,659 --------- --------- Investing activities: Property improvements and replacements.................... (68,199) (140,114) Net (increase)/decrease in restricted escrows............. (6,444) 125,616 --------- --------- Net cash provided by (used in) investing activities....... (74,643) (14,498) --------- --------- Financing activities: Payments on mortgage...................................... (149,534) (155,501) --------- --------- Net cash provided by (used in) financing activities....... (149,534) (155,501) --------- --------- Net increase (decrease) in cash and cash equivalents...... (112,099) 3,660 Cash and cash equivalents at beginning of period.......... 176,610 77,913 --------- --------- Cash and cash equivalents at end of period................ $ 64,511 $ 81,573 ========= =========
See accompanying notes to financial statements. F-4 4952 SYCAMORE CREEK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-5 4953 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Sycamore Creek Associates, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-6 4954 INDEPENDENT AUDITORS' REPORT General Partners Sycamore Creek Associates, Limited: We have audited the accompanying balance sheets of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 2, 1998 F-7 4955 SYCAMORE CREEK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 176,610 $ 26,198 Receivables and deposits.................................... 231,374 174,574 Insurance proceeds receivable (Note E)...................... 50,000 294,000 Restricted escrows (Note B)................................. 186,592 309,134 Other Assets................................................ 127,707 136,934 Investment properties (Note C): Land...................................................... 950,000 950,000 Buildings and related personal property................... 9,799,179 9,366,901 ----------- ----------- 10,749,179 10,316,901 Less accumulated depreciation............................. (7,006,605) (6,796,220) ----------- ----------- 3,742,574 3,520,681 ----------- ----------- $ 4,514,857 $ 4,461,521 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable (Note E)................................. $ 403,729 $ 373,547 Tenant security deposit liabilities....................... 64,765 51,715 Accrued taxes............................................. 187,183 198,217 Other liabilities......................................... 65,482 46,809 Mortgage notes payable (Note C)........................... 7,261,097 7,422,113 Partners' deficit........................................... (3,467,399) (3,630,880) ----------- ----------- $ 4,514,857 $ 4,461,521 =========== ===========
See accompanying notes to financial statements. F-8 4956 SYCAMORE CREEK ASSOCIATE, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,877,740 $ 1,863,228 Other income.............................................. 163,448 141,168 Casualty gain (Note E).................................... 147,000 -- ----------- ----------- Total revenues.................................... 2,188,188 2,004,396 ----------- ----------- Expenses: Operating (Notes D and E)................................. 902,610 923,126 General and administrative (Note D)....................... 57,254 60,560 Depreciation.............................................. 210,385 189,287 Interest.................................................. 666,616 679,466 Property taxes............................................ 187,842 198,901 ----------- ----------- Total expenses.................................... 2,024,707 2,051,340 ----------- ----------- Net income (loss)........................................... 163,481 (46,944) Partners' deficit at beginning of year...................... (3,630,880) (3,583,936) ----------- ----------- Partners' deficit at end of year............................ $(3,467,399) $ 3,630,880 =========== ===========
See accompanying notes to financial statements. F-9 4957 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net income (loss)......................................... $ 163,481 $ (46,944) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 210,385 189,287 Amortization of discounts and loan costs............... 81,289 78,753 (Gain) loss on casualty events......................... (147,000) 8,500 Change in accounts: Receivables and deposits............................. (56,800) (14,373) Other assets......................................... (13,919) 1,336 Accounts payable..................................... 30,182 43,344 Tenant security deposit liabilities.................. 13,050 4,920 Accrued taxes........................................ (11,034) 5,683 Other liabilities.................................... 18,673 (15,077) --------- --------- Net cash provided by operating activities......... 288,307 255,429 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (432,278) (94,111) Insurance proceeds received, net of repairs expense....... 391,000 -- Net receipts from restricted escrows...................... 122,542 20,281 --------- --------- Net cash provided by (used in) investing activities...................................... 81,264 (73,830) --------- --------- Cash flows from financing activities: Payments on mortgaged notes payable....................... (219,159) (202,536) --------- --------- Net cash used in financing activities............. (219,159) (202,536) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 150,412 (20,937) Cash and cash equivalents at beginning of year.............. 26,198 47,135 --------- --------- Cash and cash equivalents at end of year.................... $ 176,610 $ 26,198 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 585,327 $ 601,951 ========= =========
See accompanying notes to financial statements. F-10 4958 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Sycamore Creek Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated September 28, 1984. The Partnership owns and operates a 295 unit apartment complex, Sycamore Creek Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $113,787 and $136,934, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 4959 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in 1996 and the excess funds were returned for property operations. .............................................. $ -- $ 7,971 Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow and maintained with the lender. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ............................. 186,592 301,163 -------- -------- $186,592 $309,134 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $65,417, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,329,744 $7,548,903 Second mortgage note payable in interest only monthly installments of $1,624, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 256,342 256,342 ---------- ---------- Principal balance at year end............................... 7,586,086 7,805,245 Less unamortized discount................................... (324,989) (383,132) ---------- ---------- $7,261,097 $7,422,113 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $236,054 1999..................................................... 254,632 2000..................................................... 274,672 2001..................................................... 296,290 2002..................................................... 6,524,438 ---------- $7,586,086 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the F-12 4960 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- -------- ------- Management fee.................................. $101,578 $99,666 Partnership administration fee.................. $ 18,427 $19,692 Reimbursement for services of affiliates........ $ 30,526 $33,056 Construction oversight costs.................... $ 23,313 $18,549
NOTE E -- GAIN/LOSS ON CASUALTY EVENTS During 1997 the Partnership's operating property experienced a flood which destroyed part of the apartment complex. The Partnership will receive insurance proceeds totaling $397,000. Of this amount, $347,000 had been received as of December 31, 1997. The remaining $50,000 is recorded as a receivable at December 31, 1997. Costs to repair the affected units totaled approximately $531,000, of which $281,000 was capitalized as property improvements and replacements and $250,000 was expensed. This resulted in the Partnership recording a gain on casualty of $147,000 in the 1997 statement of operations. Included in accounts payable at December 31, 1997 is approximately $191,000 related to these repairs. During 1996 the clubhouse of the Partnership apartment complex was destroyed by fire. The Partnership received insurance proceeds totaling $294,000, which was recorded as a receivable at December 31, 1996, and recorded a loss on casualty of $8,500 that was included in operating expenses in the 1996 statement of operations. Costs to repair the clubhouse totaled $302,500 which was included in accounts payable at December 31, 1996. F-13 4961 SYCAMORE CREEK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 4962 INDEPENDENT AUDITOR'S REPORT General Partners Sycamore Creek Associates, Limited: We have audited the accompanying balance sheets of Sycamore Creek Associates, Limited as of December 31, 1995 and 1994, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sycamore Creek Associates, Limited as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 24, 1996 F-15 4963 SYCAMORE CREEK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 47,135 $ 154,046 Restricted -- tenant security deposits.................... 48,294 41,502 Accounts receivable......................................... 2,879 3,548 Escrow for taxes............................................ 109,028 95,383 Restricted escrows (Note B)................................. 329,415 336,863 Other assets................................................ 161,416 183,226 Investment properties (Note C): Land...................................................... 950,000 950,000 Buildings and related personal property................... 9,272,790 9,187,293 ----------- ----------- 10,222,790 10,137,293 Less accumulated depreciation............................. (6,606,933) (6,353,048) ----------- ----------- 3,615,857 3,784,245 ----------- ----------- $ 4,314,024 $ 4,598,813 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 27,703 $ 30,792 Tenant security deposits.................................. 46,795 41,380 Accrued taxes............................................. 192,534 189,928 Other liabilities......................................... 61,886 85,278 Mortgage notes payable (Note C)........................... 7,569,042 7,704,803 Partners' Deficit........................................... (3,583,936) (3,453,368) ----------- ----------- $ 4,314,024 $ 4,598,813 =========== ===========
See accompanying notes to financial statements. F-16 4964 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Revenues: Rental income............................................. $ 1,816,137 $ 1,819,632 Other income.............................................. 129,749 143,096 ----------- ----------- Total revenues.................................... 1,945,886 1,962,728 ----------- ----------- Expenses: Operating................................................. 547,165 477,906 General and administrative (Note D)....................... 55,031 44,641 Property management fees (Note D)......................... 97,108 98,775 Maintenance............................................... 238,217 167,322 Depreciation.............................................. 253,885 399,629 Interest.................................................. 691,871 703,410 Property taxes............................................ 193,177 190,546 ----------- ----------- Total expenses.................................... 2,076,454 2,082,229 ----------- ----------- Loss on disposition of property............................. -- (46,828) ----------- ----------- Net loss.................................................... (130,568) (166,329) Partners' deficit at beginning of year...................... (3,453,368) (3,287,039) ----------- ----------- Partners' deficit at end of year............................ $(3,583,936) $(3,453,368) =========== ===========
See accompanying notes to financial statements. F-17 4965 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(130,568) $(166,329) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 253,885 399,629 Amortization of discounts and loan costs............... 76,260 73,780 Loss on disposition of property........................ -- 46,828 Changes in accounts: Restricted cash...................................... (6,792) (1,892) Accounts receivable.................................. 669 18,735 Escrow for taxes..................................... (13,645) 3,427 Other assets......................................... (1,336) -- Accounts payable..................................... (3,089) 5,100 Tenant security deposit liabilities.................. 5,415 1,770 Accrued taxes........................................ 2,606 6,965 Other liabilities.................................... (23,392) 27,337 --------- --------- Net cash provided by operating activities......... 160,013 415,350 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (85,497) (97,128) Deposits to restricted escrows............................ (11,356) (74,916) Receipts from restricted escrows.......................... 18,804 1,270 --------- --------- Net cash used in investing activities............. (78,049) (170,774) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (188,875) (174,341) --------- --------- Net cash used in financing activities............. (188,875) (174,341) --------- --------- Net increase (decrease) in cash................... (106,911) 70,235 Cash and cash equivalents at beginning of year.............. 154,046 83,811 --------- --------- Cash and cash equivalents at end of year.................... $ 47,135 $ 154,046 ========= ========= Supplemental disclosure of cash flow information: Cash paid during year for interest........................ $ 615,611 $ 630,145 ========= =========
See accompanying notes to financial statements. F-18 4966 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Sycamore Creek Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated September 28, 1984. The Partnership owns and operates a 295 unit apartment complex, Sycamore Creek Apartments, in Cincinnati, Ohio. The Partnerships' Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Fair Value of Financial Instruments In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments, which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents, restricted deposits, funded reserves and financial instruments included in other assets and accrued and other liabilities are reasonable estimates of fair value due to their short-term nature. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Based on current rates, the carrying amounts of the mortgage notes payable approximate fair value. Reclassifications Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 4967 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1995 and 1994 consist of the following:
1995 1994 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1995 and the excess funds will be returned for property operations in 1996........................................ $ 29,344 $ 37,748 Reserve Escrow -- Established with a portion of the proceeds of the loan and maintained with the lender. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... 300,071 299,115 -------- -------- $329,415 $336,863 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $65,417, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,751,439 $7,940,314 Second mortgage note payable in interest only monthly installments of $1,624, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 256,342 256,342 ---------- ---------- Principal balance at year end............................... 8,007,781 8,196,656 Less unamortized discount................................... (438,739) (491,853) ---------- ---------- $7,569,042 $7,704,803 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1995 are as follows: 1996..................................................... $ 202,864 1997..................................................... 218,831 1998..................................................... 236,054 1999..................................................... 254,632 2000..................................................... 274,672 Thereafter............................................... 6,820,728 ---------- $8,007,781 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-20 4968 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee........................................... $97,108 $98,775 Partnership administration fee........................... $19,206 $19,755 Reimbursement for services of affiliates................. $27,844 $17,658 Construction fee......................................... $ -- $17,089
F-21 4969 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 4970 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for P-2 4971 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country P-3 4972 Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 4973 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 4974 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
P-6 4975 This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The P-7 4976 combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 4977 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 4978 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 4979 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; P-11 4980 (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of P-12 4981 $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. P-13 4982 (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro P-14 4983 forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 4984 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 4985 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 4986 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 4987 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 4988 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 4989 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 4990 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 4991 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 4992 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 4993 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 4994 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 4995 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 4996
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 4997 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 4998
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 4999 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5000 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5001 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5002
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5003 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5004 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5005 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5006
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5007 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5008 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5009 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-41 5010 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-42 5011 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-43 5012 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-44 5013 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-45 5014 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-46 5015 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-47 5016 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5017 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Sycamore Creek Associates, L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Sycamore Creek Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $100 in cash, or 2.75 Common OP Units of the Purchaser, or 4.00 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5018 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP A-2 5019 Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5020 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 5021
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's
B-2 5022
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 5023
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries.
B-4 5024
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5025 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5026 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Texas Residential Investors Limited Partnership in exchange for your choice of: 1,479.50 of our 8.0% Class Two Partnership Preferred Units; 956.00 of our Partnership Common Units; or $36,987 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 18% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $36,987 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns three residential apartment properties. We cannot predict when the properties may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in three properties to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5027 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-8 Fairness of the Offer........................ S-9 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Texas Residential Investors Limited Partnership................................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Properties....................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 Overview..................................... S-52 Results of Operations........................ S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59
i 5028
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-59 Proration.................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ----- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5029 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a controlling ownership interest in the general partner of your partnership, Winthrop Securities Co., Inc., and the company that manages each property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your three properties to be worth a total of $12,738,000, less approximately $832,623 of deferred maintenance and investment. It is possible, that the sale of the properties could result in you receiving more per unit than in our offer. S-1 5030 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's properties. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5031 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2040 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages three properties to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $2,959 per year on the number of Preferred OP Units, or distributions of $2,390 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 5032 partnership's units. During 1998, your partnership paid no cash distributions. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 5033 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTIES. It is not known when the properties owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until each property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns three properties. The general partner of your partnership continually considers whether the properties should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the properties will be sold or otherwise disposed of. However, there is no current plan or intention to sell the properties in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's properties while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, S-5 5034 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's properties in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in December 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's properties. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's properties while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may S-6 5035 receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,390 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,402 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 5036 - No Proposal to Sell the Properties. We are not proposing to try to liquidate the partnership and sell the partnership's properties and distribute the net proceeds. An arms-length sale of such properties after offering each property for sale through licensed real estate brokers might be a better way to determine the true value of the properties rather than the method we chose. The sale of the properties and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the [property] at the present time. At the current time we do not believe that a sale of the properties would be advantageous given market conditions, the condition of the properties and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the properties and the tax consequences to you and your partners upon a sale of the properties. For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined the offer consideration by estimating the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). Generally, we assign the initial capitalization rates as detailed below to properties in these categories. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because two of your properties net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward. See the table below for final capitalization rates used on your properties. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value.
CAPITALIZATION LOCATION/ INITIAL MORTGAGE RATE ADJ. CAPITALIZATION FINAL CONDITION CAPITALIZATION INTEREST (DUE TO RATE ADJ. CAPITALIZATION PROPERTY RATING RATE RATE INTEREST RATE) (DUE TO NOI) RATE -------- --------- -------------- -------- -------------- -------------- -------------- Crossbridge Apartments..... C/C 11.00% 7.00% 0.00% 0.00% 11.00% Ryan's Pointe.............. B/B 10.25% 7.60% 0.25% 1.42% 9.08% The Park at Deerbrook...... B/B 10.25% 7.60% 0.25% 0.83% 9.67%
Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your S-8 5037 partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: CROSS BRIDGE Net operating income........................................ 334,000 Capitalization rate......................................... 11.00% RYAN'S POINTE Net operating income........................................ 672,000 Capitalization rate......................................... 9.08% ---------- THE PARK AT DEERBROOK Net operating income........................................ 222,000 Capitalization rate......................................... 9.67% ---------- Gross valuation of partnership properties................... 12,738,000 Plus: Cash and cash equivalents............................. 583,517 Plus: Other partnership assets, net of security deposits.... 720,489 Less: Mortgage debt, including accrued interest............. (6,102,559) Less: Accounts payable and accrued expenses................. (105,090) Less: Other liabilities..................................... (576,266) ---------- Partnership valuation before taxes and certain costs........ 7,258,091 Less: Disposition fees...................................... (60,760) Less: Extraordinary capital expenditures and deferred maintenance............................................... (832,623) Less: Closing costs......................................... (318,450) ---------- Estimates net valuation of your partnership................. 6,046,258 Percentage of estimated net valuation allocated to holders of units.................................................. 102.77%(1) ---------- Estimated net valuation of units............................ 6,213,751 Total number of units..................................... 168.0 ---------- Estimated valuation per unit................................ 36,987 ========== Cash consideration per unit................................. 36,987 ==========
(1) If the general partner has a deficit capital account upon liquidation of the partnership, the general partner must contribute cash to the partnership in an amount equal to the lesser of (a) the deficiency in the capital account, or (b) 1.01% of the LPs capital contributions, reduced by any previous contributions made by the general partner. In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $36,987 by the $25 liquidation preference of each Preferred OP Unit to get 1,474.50 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $36,987 by a price of $38.69 to get 956 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe S-9 5038 the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's properties within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $36,987 Partnership Preferred Units................................. $36,987 Partnership Common Units.................................... $36,987 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $36,987 Estimated going concern value............................. $32,302 Net book value............................................ $44,555
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. S-10 5039 YOUR PARTNERSHIP Your Partnership and its Property. Texas Residential Investors Limited Partnership is a Delaware limited partnership which was formed on May 21, 1991 for the purpose of owning and operating one apartment property in Dallas, Texas and two apartment properties in Houston, Texas, known as "Crossbridge Apartments", "Park at Deerbrook Apartments" and "Ryan's Pointe Apartments," respectively. There are 160 apartment units in Crossbridge Apartments. Park at Deerbrook Apartments has 280 apartment units. In Ryan's Pointe Apartments, there are 100 apartment units. Your partnership has no employees. As of September 30, 1998, there were 168 units of limited partnership interest issued and outstanding, which were held of record by 163 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $10,500,000 of limited partnership units in 1991. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $41,763.17 per unit. Your partnership currently owns three properties. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2040, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership properties within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $4,407,985 on Ryan's Pointe Apartments, payable to Metropolitan Life, which bears interest at a rate of 7.61%. Such mortgage debt is due December 2002. There is also a mortgage note on The Park of Deerbrook Apartments, the balance of which is $1,548,752. This note is payable to Metropolitan Life, bears interest at 7.61% and is due December 2002. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 5040 THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,479.50 of our Class Two Partnership Preferred Units; - 956 of our Partnership Common Units; or - $36,987 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 18% of the outstanding 168 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,479.50 Preferred OP Units, 956 Common OP Units, or $36,987 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 18% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 5041 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 5042 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $36,987 in cash, 1,479.50 Preferred OP Units or 956 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 5043 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $36,987. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's properties and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's properties. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $42,676.95 for the fiscal year ended December 31, 1998. The property manager received management fees of $163,073 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's properties and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's properties is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $1,146,597 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5044 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5045
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5046 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. (16,740) 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5047
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5048 SUMMARY FINANCIAL INFORMATION OF TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP The summary financial information of Texas Residential Investors Limited Partnership the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Texas Residential Investors Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues................ $2,458,384 $2,380,478 $3,173,970 $2,813,082 $2,865,809 $2,838,748 $2,812,474 Net Income/(Loss)............. 315,068 124,134 165,512 (116,678) 498,026 598,831 378,585 Net Income per limited partnership unit............ 1,856.65 731.50 975.34 (687.57) 2,934.80 3,528.83 2,230.95 Distributions per limited partnership unit............ 1,008.17 1,008.17 37,000.00 3,792.93 5,007.25 Distributions per limited partnership unit (which represent a return of capital).................... -- -- --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents..... $ 652,479 $ 604,006 $ 675,795 $ 388,637 $6,620,669 $ 892,063 $ 975,157 Real Estate, Net of Accumulated Depreciation.... 12,083,859 12,035,154 11,964,890 12,250,545 12,438,432 12,514,579 12,651,544 Total Assets.................. 14,602,384 14,302,467 14,301,097 14,306,577 20,375,735 14,524,115 14,889,443 Notes Payable................. 5,988,917 6,116,060 6,102,560 6,156,558 6,235,909 -- -- General Partners' Capital/(Deficit)........... (524,990) (456,993) (528,141) (471,472) (464,083) (452,591) (460,287) Limited Partners' Capital/(Deficit)........... 8,325,242 7,910,799 8,013,325 8,018,840 14,350,351 14,488,145 14,728,108 Partners' Capital/(Deficit)... 7,800,252 7,443,805 7,485,184 7,547,368 13,886,268 14,025,454 14,267,841 Total Distributions........... -- 227,596 227,696 6,222,222 637,212 841,218 -- Book value per limited partnership unit............ 49,555.01 47,088.09 47,698.36 47,731.19 85,418.76 88,238.96 87,667.31 Net increase (decrease) in cash and cash equivalents... (29,316) 215,389 287,158 (6,232,032) 5,728,505 (83,094) 975,157 Net cash provided by operating activities.................. 336,888 490,589 930,271 207,144 899,536 970,727 736,486 Ratio of earnings to fixed charges..................... 1.79/1 1.38/1 1.36/1 0.75/1 -- -- --
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
TEXAS RESIDENTIAL AIMCO INVESTORS OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $2,390 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $2,959 $0
S-20 5049 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 5050 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's properties. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your properties to be worth a total of $12,738,000 less approximately $832,623 of deferred maintenance and investment not considered by the appraiser. It is possible, that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's properties from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 5051 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's properties. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 5052 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2040 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages three properties to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 5053 is equivalent to distributions of $2,959 per year on the number of Preferred OP Units, or distributions of $2,402 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid no cash distributions. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 5054 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTIES. It is not known when the properties owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until each property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns three properties. The general partner of your partnership continually considers whether the properties should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the properties will be sold or otherwise disposed of. However, there is no current plan or intention to sell the properties in the near future. S-26 5055 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 6.548% interest, consisting of a 6.548% limited partnership interest and a 0% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 5056 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 5057 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's properties would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $124,134 for the nine months ended September 30, 1997, to $315,068 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's properties in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in December 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-29 5058 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require approval of limited partners owning in the aggregate 50% of the partnership units outstanding. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the properties it owns. The general partner of your partnership considers sale of your partnership's properties from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the properties owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the properties owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 5059 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of 2,959 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $2,309 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 5060 - No Proposal to Sell the Properties. We are not proposing to try to liquidate the partnership and sell the partnership's properties and distribute the net proceeds. An arms-length sale of the properties after offering each property for sale through licensed real estate brokers might be a better way to determine the true value of the properties rather than the method we chose. The sale of the properties and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the properties would be advantageous given market conditions, the condition of the properties and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of each property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). Generally, we assign the initial capitalization rates as detailed below to properties in these categories. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because two of your properties net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward. See table below for final capitalization rates used on your properties. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value.
CAPITALIZATION LOCATION/ INITIAL MORTGAGE RATE ADJ. CAPITALIZATION FINAL CONDITION CAPITALIZATION INTEREST (DUE TO RATE ADJ. CAPITALIZATION PROPERTY RATING RATE RATE INTEREST RATE) (DUE TO NOI) RATE - -------- --------- -------------- -------- -------------- -------------- -------------- Crossbridge Apartments..... C/C 11.00% 7.00% 0.00% 0.00% 11.00% Ryan's Pointe.............. B/B 10.25% 7.60% 0.25% 1.42% 9.08% The Park at Deerbrook...... B/B 10.25% 7.60% 0.25% 0.83% 9.67%
Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: S-32 5061 - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME RATE VALUE -------- ---------------- -------------- -------------- Crossbridge Apartments..................... $334,000(1) 11.00% $ 3,037,991 Ryan's Pointe Apartments................... $672,000(2) 9.08% $ 7,400,000 Park at Deerbrook Apartments............... $222,000(3) 9.67% $ 2,300,000 Estimated Total Gross Property Value....... $12,738,000
- --------------- (1) The total net operating income is equal to total revenues of $833,138, less total expenses of $450,959 and recurring replacement costs of $48,000. (2) The total net operating income is equal to total revenues of $1,663,366, less total expenses of $907,252 and recurring replacement costs of $84,000. (3) The total net operating income is equal to total revenues of $624,557, less total expenses of $372,084 and recurring replacement costs of $30,000. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $6,046,258. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 102.77% of the estimated liquidation proceeds are assumed to be S-33 5062 distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. CROSS BRIDGE Net operating income........................................ 334,000 Capitalization rate......................................... 11.00% ----------- RYAN'S POINTE Net operating income........................................ 672,000 Capitalization rate......................................... 9.08% ----------- THE PARK AT DEERBROOK Net operating income........................................ 222,000 Capitalization rate......................................... 9.67% ----------- Gross valuation of partnership properties................... 12,738,000 Plus: Cash and cash equivalents............................. 583,517 Plus: Other partnership assets, net of security deposits.... 720,489 Less: Mortgage debt, including accrued interest............. (6,102,559) Less: Accounts payable and accrued expenses................. (105,090) Less: Other liabilities..................................... (576,266) ----------- Partnership valuation before taxes and certain costs........ 7,258,091 Less: Disposition fees...................................... (60,760) Less: Extraordinary capital expenditures and deferred maintenance............................................... (832,623) Less: Closing costs......................................... (318,450) ----------- Estimated net valuation of your partnership................. 6,046,258 Percentage of estimated net valuation allocated to holders of units.................................................. 102.77%(1) ----------- Estimated net valuation of units............................ 6,213,751 Total number of units..................................... 168.0 ----------- Estimated valuation per unit................................ 36,987 =========== Cash consideration per unit................................. 36,987 ===========
(1) If the general partner has a deficit capital account upon liquidation of the partnership, the general partner must contribute cash to the partnership in an amount equal to the lesser of (a) the deficiency in the capital account, or (b) 1.01% of the LPs capital contributions, reduced by any previous contributions made by the general partner. - In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $36,987 by the $25 liquidation preference of each Preferred OP Unit to get 1,479.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $36,987 by a price of $38.69 to get 956 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $6,046,258 or 1.06% is the net valuation of your partnership. S-34 5063 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's properties has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $124,134 for the nine months ended September 30, 1997 to $315,068 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 5064 11. The estimated unit value of $36,987, based on a total estimated value of your partnership's properties of $12,738,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's properties. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $2,959 per year on the number of Preferred OP Units, or distributions of $2,390 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 5065 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 5066 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2040, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $36,987 Partnership preferred units................................. $36,987(1) Partnership common units.................................... $36,987(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $36,987 Estimated going concern value............................. $32,302 Net book value............................................ $44,555
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-38 5067 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 17.5%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $32,302 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is $44,555 and above the offer price. Net book value is not considered to reflect a market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $38,928 per unit, going concern value of $35,830 per unit and liquidation value of $36,608 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably S-39 5068 could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $ , $ and $ . In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 102.77% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and S-40 5069 other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
CROSSBRIDGE APTS. RYAN'S POINTE PARK AT DEERBROOK ----------------- ------------- ----------------- Total Revenues.............................. $ 820,978 $1,692,050 $ 638,061 Operating Expenses.......................... (480,238) (982,345) (379,889) Replacement Reserves -- Net................. (302,771) (366,754) (158,747) Debt Service................................ 0 (413,185) (146,063) Capital Expenditures........................ (39,900) (46,360) (10,900) --------- ---------- --------- Net Cash Flow..................... $ (1,931) $ (116,594) $ (57,538) ========= ========== =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. S-41 5070 In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rates ranging from 9.08% to 11.0%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and [(iii) extraordinary capital expenditure estimates in the amount of $832,623. A disposition fee of $60,760 and a deficit restoration obligation of 168,681. Stanger observed that your partnership liquidation value of $6,213,751 was divided by the total units outstanding of 168 to provide the liquidation value per unit of $36,987. S-42 5071 Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,228,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $70,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at capitalization rate ranges of 9.58% to 11.5%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 17.5%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 12.1%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 168 to achieve management's estimate of going concern value of $32,302 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $36,987 per unit is equal to management's estimate of liquidation value, and reflects a 15% premium to management's estimate of going concern value $32,302. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year following the closing of this transaction, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, S-43 5072 liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 17.5% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 17.5% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 45% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, estimates of deficit restoration obligations, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $38,928, $35,830 and $36,608 representing premiums (discounts) to the offer price of 5.2%, (3.1%) and (1.0%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with S-44 5073 respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $15,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Texas Residential Investors Limited Partnership, is a Delaware limited partnership which completed a private offering in May 21, 1991. Insignia acquired the general partner of your partnership in November 1997. AIMCO acquired Insignia in October 1998. There are currently a total of 163 limited partners of your partnership and a total of 168 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the properties described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. S-45 5074 YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 21, 1991 for the purpose of owning one apartment property in Dallas, Texas and two apartment properties in Houston, Texas, known as "Crossbridge Apartments", "Park at Deerbrook Apartments" and "Ryan's Pointe Apartments," respectively. There are 160 apartment units in Crossbridge Apartments. Park at Deerbrook Apartments has 280 apartment units. In Ryan's Pointe Apartments, there are 100 apartment units. Both Ryan's Pointe Apartments and The Park of Deerbrook Apartments are owned by the partnership but are subject to a mortgage. Your partnership's properties had an average occupancy rate for all three properties of approximately 96.70% in 1998. Your partnership's properties provide residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations for 1999 total $832,623 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, gutters and downspouts, plumbing siding/trim/facia/soffits, exterior paint, stairwells, balconies, sidewalks, drives and parking lots, landscape and irrigation, life support systems, pool, heating, ventilation and air conditioning systems, electrical and exterior lighting. Set forth below are the average rents for the three apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $466 $411 $417 $403 $377
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the three properties are as follows:
1998 TOTAL 1998 ASSESSED 1998 AVERAGE 1999 PROJECTED PROPERTY NAME REAL ESTATE TAXES PROPERTY VALUE TAX RATE TAX RATE ------------- ----------------- -------------- ------------ -------------- Crossbridge................ $ 93,910 $3,468,030 2.71% 2.84% Ryan's Pointe.............. 113,859 5,845,400 1.95% 2.05% The Park at Dearbrook...... 68,356 2,437,330 2.81% 2.95%
PROPERTY MANAGEMENT Your partnership's properties are managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's properties, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2040 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's properties within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's properties as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited S-46 5075 partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's properties by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the properties specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's properties in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's properties primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 466% and $479, respectively, at December 31, 1998, compared to 97% and $466, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy to remain strong rental rates to improve in the near future because of the propertys' locations in favorable markets and due to the amenities which are offered at each property. In addition, the general partner noted that it expects to spend approximately $832,623 for capital expenditures and improvements at the property in 1999 to update and improve the propertys' appearance. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $4,407,985 on Ryans Pointe Apartments, payable to Metropolitan Life, which bears interest at a rate of 7.61%. Such mortgage debt is due December 2002. There is also a mortgage note on The Park of Deerbrook Apartments, the balance of which is $1,548,752. This note is payable to Metropolitan Life, bears interest at 7.61% and is due December 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. S-47 5076 COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $10,500,000 of limited partnership units in 1991. Your partnership currently owns three apartment properties. Your partnership used the funds raised to purchase its properties and it has expended the funds so raised many years ago. Your partnership currently owns the properties described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2040, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates who perform services on behalf of your partnership will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they believed in good faith that such act or omission was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct on the part of the such person. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will indemnify and save harmless the general partner and its affiliates who perform services on behalf of your partnership, to the full extent permitted by law, against any loss, damage, liability, cost or expense (including reasonable attorneys' fees) incurred by them in connection with your partnership provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct on the part of such persons. Such indemnity will be paid from, and only to the extent of, partnership assets. However, the general partner, its affiliates and any placing broker will be liable and not be indemnified from any loss, damage or cost resulting from the violation of any federal or state securities law in connection with the sale of units unless (i) there has been a successful adjudication on the merits of each count involving such securities law violation, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (iii) a court of competent jurisdiction approves a settlement of such claim. In such claim for indemnification for federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. S-48 5077 No partnership funds will be used to purchase any insurance that insures any party against any liability that is prohibited by your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------- ------------------ ------------------ ------------ 1993.................................. $ 0 $0 $ 0 $ 0 1994.................................. 0 0 0 0 1995.................................. 3,793 0 41,305 157,710 1996.................................. 37,037 0 407,024 1,554,000 1997.................................. 1,355 0 11,090 42,343 1998.................................. 0 0 0 0 ------- -- -------- ---------- Total....................... $42,185 $0 $459,419 $1,754,053 ======= == ======== ==========
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 4,300 1995........................................................ 3,755 1996........................................................ 37,000 1997........................................................ 1,000 1998........................................................ [ ]
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 6.548% interest in your partnership, including the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 5078 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $42,877 1995........................................................ 45,450 1996........................................................ 48,177 1997........................................................ 58,706 1998........................................................ 42,677
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- Not 1994........................................................ available 1995........................................................ $138,499 1996........................................................ 137,205 1997........................................................ 152,785 1998........................................................ 163,073
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 5079 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
TEXAS RESIDENTIAL INVESTORS LP ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents...... $ 652,479 $ 604,006 $ 675,795 $ 388,637 6,620,669 892,063 $ 975,157 Land & Building................ 15,323,023 14,791,879 14,842,560 14,639,835 14,373,866 14,048,403 13,813,472 Accumulated Depreciation....... (3,239,164) $(2,756,725) (2,877,870) (2,389,290) (1,935,434) (1,533,824) (1,161,929) Other Assets................... 1,866,046 1,662,308 1,660,612 1,667,395 1,316,634 1,117,473 1,242,742 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $14,602,384 $14,302,467 $14,301,097 $14,306,577 $20,375,735 $14,524,115 $14,889,443 =========== =========== =========== =========== =========== =========== =========== Notes Payable.................. 5,988,917 6,116,060 6,102,560 6,156,558 6,235,909 -- -- Other Liabilities.............. 813,215 742,602 713,353 602,651 253,558 498,661 601,602 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $ 8,802,132 $ 6,858,661 $ 6,815,913 $ 6,759,209 $ 6,489,467 $ 498,661 $ 601,602 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit....... $ 7,800,252 $ 7,443,806 $ 7,485,184 $ 7,547,368 $13,886,268 $14,025,454 $14,267,841 =========== =========== =========== =========== =========== =========== ===========
TEXAS RESIDENTIAL INVESTORS LP ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $2,343,023 $2,262,952 $3,017,269 $2,661,069 $2,701,538 $2,609,592 $2,444,750 Other Income................... 115,361 $ 117,626 156,701 152,013 164,271 229,156 367,724 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $2,458,384 $2,380,478 $3,173,970 $2,813,082 $2,865,809 $2,838,748 $2,812,474 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. 840,045 $ 936,119 $1,248,159 $1,285,755 $1,214,949 $1,299,665 $1,314,623 General & Administrative....... 271,089 $ 294,019 392,025 291,590 343,180 203,187 220,871 Depreciation................... 366,435 $ 366,435 488,580 453,856 401,610 371,896 357,901 Interest Expense............... 399,379 $ 348,914 465,218 475,477 -- -- 183,960 Property Taxes................. 266,368 310,857 414,476 423,082 408,044 365,169 358,534 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $2,143,316 $2,256,344 $3,008,458 $2,929,760 $2,367,783 $2,239,917 $2,433,889 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income before extraordinary items........................ $ 315,068 $ 124,134 $ 165,512 $ (116,678) $ 498,026 $ 598,831 $ 378,585 Extraordinary Items ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).............. $ 315,068 $ 124,134 $ 165,512 $ (116,678) $ 498,026 $ 598,831 $ 378,585 ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ 1,856.65 $ 731.50 $ 975.34 $ (687.57) $ 2,934.80 $ 3,528.83 $ 2,230.95 ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ -- $ 1,008.17 $ 1,008.17 $37,000.00 $ 3,792.93 $ 5,007.25 $ -- ========== ========== ========== ========== ========== ========== ==========
S-51 5080 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $315,068 for the nine months ended September 30, 1998, compared to $124,134 for the nine months ended September 30, 1997. The increase in net income of $190,934 was primarily the result of a decrease in overall expenses, coupled with a increase in rental revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $2,458,384 for the nine months ended September 30, 1998, compared to $2,380,478 for the nine months ended September 30, 1997, an increase of $77,906, or 3.3%. This is due primarily to an increase in rental rates at the property during the period EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $894,957 for the nine months ended September 30, 1998, compared to $936,119 for the nine months ended September 30, 1997, a decrease of $41,162, or 4%. General and administrative expenses decreased $22,930 to $271,089 for the nine months ended September 30, 1998, compared to the corresponding period of 1997. Depreciation expense was comparable for both periods. Interest expense totaled $344,467 for the nine months ended September 30, 1998, compared to $348,914 for the nine months ended September 30, 1997, a decrease of $4,447. This decrease is due to a lower outstanding mortgage balance resulting from principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $165,512 for the year ended December 31, 1997, compared to a net loss of $116,678 for the year ended December 31, 1996. The increase in net income of $282,190 was primarily the result of an increase in rental income. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $3,173,970 for the year ended December 31, 1997, compared to $2,813,082 for the year ended December 31, 1996, an increase of $360,888, or 12.8%. S-52 5081 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,248,159 for the year ended December 31, 1997, which is comparable to the expenses incurred for the previous year. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $392,025, an increase of $100,435 from prior year. DEPRECIATION EXPENSE Depreciation expense increased $34,724 to $488,580 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $465,218 for the year ended December 31, 1997, compared to $475,477 for the year ended December 31, 1996, a decrease of $10,259, or 2.2%. The decrease is a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $116,678 for the year ended December 31, 1996, compared to net income of $498,026 for the year ended December 31, 1995. The increase in net loss of $614,704 was primarily the result of interest expense related to the property obtaining financing in December of 1995. In addition, rental revenue declined as overall expenses grew. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $2,813,082 for the year ended December 31, 1996, compared to $2,865,809 for the year ended December 31, 1995, a decrease of $52,727. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,285,755 for the year ended December 31, 1996, compared to $1,214,949 for the year ended December 31, 1995, an increase of $70,806 or 5.8%. DEPRECIATION EXPENSE Depreciation expense increased $52,246, or 13% due primarily to capitalized additions to the investment property during the year ended December 31, 1996. INTEREST EXPENSE Interest expense totaled $475,477 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995. The increase is due to the partnership obtaining a mortgage on the property as of December 28,1995. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $556,262 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and S-53 5082 interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $5,988,917. The mortgage requires monthly payments of approximately $46,530 until December, 2002, on which date a balloon payment of approximately $5,656,731 is due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 7.61%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 5083 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 18% of the outstanding 168 units of your partnership (up to 31 units) for consideration per unit of (i) 1,479.50 Preferred OP Units, (ii) 956 Common OP Units, or (iii) $36,987 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 5084 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 5085 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 5086 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 5087 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 5088 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 18% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 18% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 18% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 18%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 5089 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 5090 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 5091 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 5092 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 5093 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 5094 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 5095 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 5096 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 5097 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 5098 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 5099 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 5100 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law for the purpose as a Delaware limited partnership. The AIMCO of owning and managing Crossbridge Operating Partnership owns interests (either Apartments, Park at Deerbrook Apartments and directly or through subsidiaries) in Ryan's Pointe Apartments, respectively. numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is Partnership Agreement") or as provided by December 31, 2040. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating an interest as a general partner in Texas Partnership is to conduct any business that Apartment Investors and to hold, own, may be lawfully conducted by a limited maintain, sell, transfer, convey, exchange, partnership organized pursuant to the otherwise dispose or deal in this Delaware Revised Uniform Limited Part- partnership interest. Subject to nership Act (as amended from time to time, restrictions contained in your partnership's or any successor to such statute) (the agreement of limited partnership, your "Delaware Limited Partnership Act"), partnership may perform all acts neces- provided that such business is to be sary, advisable or convenient to the conducted in a manner that permits AIMCO to business of your partnership including be qualified as a REIT, unless AIMCO ceases borrowing money and creating liens. to qualify as a REIT. The AIMCO Operating Partner-
S-72 5101 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 105 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be general partner may increase the total established by the general partner in its number of units sold to 168 units in its sole discretion. The net capital sole discretion. The capital contribution contribution need not be equal for all OP need not be equal for all limited partners Unitholders. No action or consent by the OP and no action or consent is required in Unitholders is required in connection with connection with the admission of any the admission of any additional OP additional limited partners. Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the In addition, the general partner may sell accompanying Prospectus. Subject to Delaware additional limited partnership interests on law, any additional partnership interests such terms and conditions and the additional may be issued in one or more classes, or one limited partners will have such rights and or more series of any of such classes, with obligations as the general partner such designations, preferences and relative, determines; provided that the general participating, optional or other special partner must first offer such interests to rights, powers and duties as shall be the original limited partners. With the determined by the general partner, in its consent of the limited partners holding a sole and absolute discretion without the majority of the units, the general partner approval of any OP Unitholder, and set forth may also sell other equity interests in your in a written document thereafter attached to partnership, other than units, which have and made an exhibit to the AIMCO Operating such rights as the general partner may Partnership Agreement. determine.
Restrictions Upon Related Party Transactions Your partnership may pay the general partner The AIMCO Operating Partnership may lend or or its affiliates fees for various goods and contribute funds or other assets to its services, including, without limitation, subsidiaries or other persons in which it insurance, insurance broker- has an equity investment,
S-73 5102 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP age, mortgage brokerage in connection with and such persons may borrow funds from the financings and refinancings of your AIMCO Operating Partnership, on terms and partnership's property, management, conditions established in the sole and rehabilitation, construction supervision, absolute discretion of the general partner. leasing and property brokerage at the then To the extent consistent with the business prevailing market rates in the vicinity of purpose of the AIMCO Operating Partnership your partnership's property. Although your and the permitted activities of the general partnership may not make loans to the partner, the AIMCO Operating Partnership may general partner or any of its affiliates, transfer assets to joint ventures, limited the partners and their affiliates may lend liability companies, partnerships, money to your partnership. Such loans will corporations, business trusts or other be evidenced by promissory notes which bear business entities in which it is or thereby interests at a commercially reasonably rate becomes a participant upon such terms and not in excess of the lesser of the maximum subject to such conditions consistent with rate permitted by law and 3% above the "base the AIMCO Operating Partnership Agreement rate" of The First National Bank of Boston and applicable law as the general partner, and be subordinate to the obligation of your in its sole and absolute discretion, partnership to pay unrelated creditors of believes to be advisable. Except as your partnership, but have priority over expressly permitted by the AIMCO Operating distributions to partners. Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money or establish a contains no restrictions on borrowings, and lien of credit on the general credit of your the general partner has full power and partnership or secure any such debt by authority to borrow money on behalf of the mortgage, pledge or other lien on any of the AIMCO Operating Partnership. The AIMCO assets of your partnership, and to issue Operating Partnership has credit agreements evidences of indebtedness in furtherance of that restrict, among other things, its any or all of the purposes of your ability to incur indebtedness. partnership and to enter into any agreement necessary or advisable in connection with such borrowing.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner or written demand with a statement of the its duly authorized representative to purpose of such demand and at such OP inspect the register containing the names Unitholder's own expense, to obtain a and interests owned by the partners at any current list of the name and last known reasonable time during normal business hours business, residence or mailing address of at the office of your partnership. the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has All management powers over the business and the exclusive right to manage and control affairs of the AIMCO Operating Partnership the business of your partnership, to bind are vested in AIMCO-GP, Inc., which is the your partnership by its sole signature and general partner. No OP Unitholder has any to take any action it deems necessary or right to participate in or exercise control advisable in connection with the business of or management power over the business and your partnership. No limited partner has any affairs of the AIMCO Operating Partner- authority or
S-74 5103 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP right to act for or bind your partnership or ship. The OP Unitholders have the right to participate in or have any control over your vote on certain matters described under partnership business, except as required by "Comparison of Your Units and AIMCO OP law. Units -- Voting Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates who Agreement, the general partner is not liable perform services on behalf of your to the AIMCO Operating Partnership for partnership will not incur any liability, losses sustained, liabilities incurred or responsibility or accountability for damages benefits not derived as a result of errors or otherwise to your partnership or any in judgment or mistakes of fact or law of limited partner arising out of any acts any act or omission if the general partner performed or any omission by any of them if acted in good faith. The AIMCO Operating they believed in good faith that such act or Partnership Agreement provides for omission was in the best interests of your indemnification of AIMCO, or any director or partnership and such course of conduct did officer of AIMCO (in its capacity as the not constitute negligence or misconduct on previous general partner of the AIMCO the part of the such person. In addition, Operating Partnership), the general partner, your partnership will indemnify and save any officer or director of general partner harmless the general partner and its or the AIMCO Operating Partnership and such affiliates who perform services on behalf of other persons as the general partner may your partnership, to the full extent designate from and against all losses, permitted by law, against any loss, damage, claims, damages, liabilities, joint or liability, cost or expenses (including several, expenses (including legal fees), reasonable attorneys' fees) incurred by them fines, settlements and other in connection with
S-75 5104 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP your partnership provided that such loss, amounts incurred in connection with any damage, liability, cost or expense was not actions relating to the operations of the the result of negligence or misconduct on AIMCO Operating Partnership, as set forth in the part of such persons. Such indemnity the AIMCO Operating Partnership Agreement. will be paid from, and only to the extent The Delaware Limited Partnership Act of, partnership assets. However, the general provides that subject to the standards and partner, its affiliates and any placing restrictions, if any, set forth in its broker will be liable and not be indemnified partnership agreement, a limited partnership from any loss, damage or cost resulting from may, and shall have the power to, indemnify the violation of any Federal or state and hold harmless any partner or other securities law in connection with the sale person from and against any and all claims of units unless (i) there has been a and demands whatsoever. It is the position successful adjudication on the merits of of the Securities and Exchange Commission each count involving such securities law and certain state securities administrations violation, (ii) such claims have been that indemnification of directors and dismissed with prejudice on the merits by a officers for liabilities arising under the court of competent jurisdiction or (iii) a Securities Act is against public policy and court of competent jurisdiction approves a is unenforceable pursuant to Section 14 of settlement of such claim. In such claim for the Securities Act of 1933 and their indemnification for Federal or state respective state securities laws. securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for secu- rities law violations.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove the general partner upon the vote the business and affairs of the AIMCO of the limited partners holding more than Operating Partnership. The general partner 50% of the then outstanding units. The may not be removed as general partner of the general partner may withdraw voluntarily AIMCO Operating Partnership by the OP from your partnership only if another Unitholders with or without cause. Under the general partner remains or is elected. The AIMCO Operating Partnership Agreement, the general partner may admit any person as an general partner may, in its sole discretion, additional or substitute general partner if prevent a transferee of an OP Unit from the limited partners owning more than 50% of becoming a substituted limited partner the then outstanding units consent. A pursuant to the AIMCO Operating Partnership limited partner may not transfer his Agreement. The general partner may exercise interests without the consent of the general this right of approval to deter, delay or partner. hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended upon approval by set forth in the AIMCO Operating Partnership the limited partners owning more than 50% of Agreement, whereby the general partner may, the units and the general partner. No without the consent of the OP Unitholders, amendment may be adopted which affect the amend the AIMCO Operating Partnership obligation of the limited partners to Agreement, amendments to
S-76 5105 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP make their required capital contribution or the AIMCO Operating Partnership Agreement affect the timing or the amount of the fees require the consent of the holders of a paid by your partnership under your majority of the outstanding Common OP Units, partnership's agreement of limited excluding AIMCO and certain other limited partnership. Any amendment which adversely exclusions (a "Majority in Interest"). affects the rights of a specific partner Amendments to the AIMCO Operating must be approved by such affected partner. Partnership Agreement may be proposed by the Amendments which increase the amount of or general partner or by holders of a Majority accelerate the date of payment for capital in Interest. Following such proposal, the contributions required to be paid by limited general partner will submit any proposed partners, extend the termination date of amendment to the OP Unitholders. The general your partnership, adversely affect the partner will seek the written consent of the rights of limited partners or amend the OP Unitholders on the proposed amendment or amendment provisions required the consent of will call a meeting to vote thereon. See all limited partners. The general partner "Description of OP Units -- Amendment of the may amend your partnership's agreement of AIMCO Operating Partnership Agreement" in limited partnership without the consent of the accompanying Prospectus. the limited partners to comply with the applicable laws and correct any ambiguities.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $22,500 (which may be increased pro its capacity as general partner of the AIMCO rata to up to $36,000 if, in the discretion Operating Partnership. In addition, the of the general partner, the offering of AIMCO Operating Partnership is responsible units is increased to $16,180,000) beginning for all expenses incurred relating to the in 1991, increasing annually at a rate of 6% AIMCO Operating Partnership's ownership of beginning in 1992. Moreover, the general its assets and the operation of the AIMCO partner or certain affiliates may be Operating Partnership and reimburses the entitled to compensation for additional general partner for such expenses paid by services rendered. the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, no limited partner is gross negligence, no OP Unitholder has liable for the debts, liabilities, contacts personal liability for the AIMCO Operating or obligations of your partnership. A Partnership's debts and obligations, and limited partner is liable only to make liability of the OP Unitholders for the payments of its capital contribution when AIMCO Operating Partnership's debts and due under your partnership's agreement of obligations is generally limited to the limited partnership. After its capital amount of their investment in the AIMCO contribution has been fully paid, no limited Operating Partnership. However, the partner, except as otherwise required by limitations on the liability of limited applicable law, is required to make any partners for the obligations of a limited further capital contributions or to make partnership have not been clearly loans to your partnership. established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pur-
S-77 5106 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP suant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
S-78 5107 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must diligently and faithfully devote as generally requires a general partner of a much of its time but is not required to Delaware limited partnership to adhere to devote its full time, to the business of fiduciary duty standards under which it owes your partnership as necessary to conduct the its limited partners the highest duties of business of your partnership and must at all good faith, fairness and loyalty and which times act in a fiduciary manner toward your generally prohibit such general partner from partnership and the limited partners. The taking any action or engaging in any general partner at all times has a fiduciary transaction as to which it has a conflict of responsibility for the safekeeping and use interest. The AIMCO Operating Partnership of all partnership funds and assets. The Agreement expressly authorizes the general general partner may assign some of its partner to enter into, on behalf of the general partner functions to affiliate; AIMCO Operating Partnership, a right of provided, however, that, notwithstanding any first opportunity arrangement and other such assignment, the general partner will conflict avoidance agreements with various retain full responsibility to your affiliates of the AIMCO Operating partnership for the satisfactory performance Partnership and the general partner, on such of all partnership general partner duties. terms as the general partner, in its sole Subject to its fiduciary duties, the general and absolute discretion, believes are partner and its affiliates may engage in or advisable. The AIMCO Operating Partnership possess an interest in other business Agreement expressly limits the liability of ventures of every nature and description, the general partner by providing that the including without limitation, real estate general partner, and its officers and business ventures, whether or not such other directors will not be liable or accountable enterprises are in competition with any in damages to the AIMCO Operating activities of your partnership. Partnership, the limited partners or as- signees for errors in judgment or mistakes In general, your partnership's agreement of of fact or law or of any act or omission if limited partnership and the AIMCO Operating the general partner or such director or Partnership Agreement have limitations on officer acted in good faith. See the liability of the general partner but "Description of OP Units -- Fiduciary such limitations differ and provide more Responsibilities" in the accompanying protection for the general partner of the Prospectus. AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO
S-79 5108 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the
S-80 5109 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the general AIMCO Operating Partnership OP Unitholders have voting partner, with the consent of Agreement, the holders of rights only with respect to the limited partners may the Preferred OP Units will certain limited matters such continue the business of have the same voting rights as certain amendments and your partnership after the as holders of the Common OP termination of the AIMCO sale of all or substantially Units. See "Description of Operating Partnership or the assets solely for the OP Units" in the accompany- Agreement and certain purpose of receiving and ing Prospectus. So long as transactions such as the collecting notes received in any Preferred OP Units are institution of bankruptcy consideration of your outstanding, in addition to proceedings, an assignment partnership's assets, any other vote or consent of for the benefit of creditors dissolve your partnership partners required by law or and certain transfers by the and admit an addition or by the AIMCO Operating general partner of its substitute general partner. Partnership Agreement, the interest in the AIMCO The consent of a limited affirmative vote or consent Operating Partnership or the partner will be deemed to be of holders of at least 50% admission of a successor granted if it does not of the outstanding Preferred general partner. refuse to consent in writing OP Units will be necessary within thirty days after it for effecting any amendment Under the AIMCO Operating received notice requesting of any of the provisions of Partnership Agreement, the its consent. The holders of the Partnership Unit general partner has the a majority in interest of Designation of the Preferred power to effect the the outstanding units may OP Units that materially and acquisition, sale, transfer, also remove the general adversely affects the rights exchange or other partner, elect a general or preferences of the disposition of any assets of partner, amend your holders of the Preferred OP the AIMCO Operating partnership's agreement of Units. The creation or Partnership (including, but limited partnership, subject issuance of any class or not limited to, the exercise to certain exceptions, series of partnership units, or grant of any conversion, approve or disapprove the including, without option, privilege or sale of all or sub- limitation, any partner- subscription right or any stantially all of the assets ship units that may have other right available in of your partnership and rights senior or superior to connection with any assets terminate your partnership the Preferred OP Units, at any time held by the before the expiration of its shall not be deemed to AIMCO Operating Partnership) term. materially adversely affect or the merger, the rights or preferences of consolidation, In general, you have greater the holders of Preferred OP reorganization or other voting rights in your Units. With respect to the combination of the AIMCO partnership than you will exercise of the above Operating Partnership with have as an OP Unitholder. OP described voting rights, or into another entity, all Unitholders can not remove each Preferred OP Units without the consent of the the general partner of the shall have one (1) vote per OP Unitholders. AIMCO Operating Partnership. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in
S-81 5110 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions of Cash Flow (as at the rate of $0.50 per or such portion as the defined in your partnership Preferred OP Unit; provided, general partner may in its agreement) are distributed however, that at any time sole and absolute discretion at reasonable intervals and from time to time on or determine, of Available Cash during the fiscal year as after the fifth anniversary (as defined in the AIMCO determined by the general of the issue date of the Operating Partnership partner, and in any event Preferred OP Units, the Agreement) generated by the are made within sixty days AIMCO Operating Partnership AIMCO Operating Partnership after the close of the may adjust the annual during such quarter to the fiscal year. The distribution rate on the general partner, the special distributions payable to the Preferred OP Units to the limited partner and the partners are not fixed in lower of (i) 2.00% plus the holders of Common OP Units amount and depend upon the annual interest rate then on the record date es- operating results and net applicable to U.S. Treasury tablished by the general sales or refinancing pro- notes with a maturity of partner with respect to such ceeds available from the five years, and (ii) the quarter, in accordance with disposition of your annual dividend rate on the their respective interests partnership's assets. most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Preferred OP Units issued in Cumulative Preferred Stock. the future may have priority Such distributions will be over the general partner, cumulative from the date of the special limited partner original issue. Holders of and holders of Com- Preferred OP Units will not be entitled to
S-82 5111 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS receive any distributions in mon OP Units with respect to excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-83 5112 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person who is not a minor, and the Preferred OP Units Operating Partnership except in limited cir- are not listed on any Agreement restricts the cumstances, or an securities exchange. The transferability of the OP incompetent and such person Preferred OP Units are Units. Until the expiration will become a substitute subject to restrictions on of one year from the date on limited partner if: (1) such transfer as set forth in the which an OP Unitholder transfer is of at least 1/2 AIMCO Operating Partnership acquired OP Units, subject unit, except in limited Agreement. to certain exceptions, such circumstances, (2) a OP Unitholder may not transfer application has Pursuant to the AIMCO transfer all or any por- been completed by the as- Operating Partnership tion of its OP Units to any signor and assignee, (3) the Agreement, until the transferee without the approval of the general expiration of one year from consent of the general partner which may be the date on which a holder partner, which consent may withheld in the sole and of Preferred OP Units be withheld in its sole and absolute discretion of the acquired Preferred OP Units, absolute discretion. After general partner has been subject to certain the expiration of one year, granted, (4) the transfer, exceptions, such holder of such OP Unitholder has the when added to all other Preferred OP Units may not right to transfer all or any assignments within the transfer all or any portion portion of its OP Units to preceding twelve months of its Preferred OP Units to any person, subject to the ending on the date of the any transferee without the satisfaction of certain con- proposed assignment would consent of the general ditions specified in the not result in the partner, which consent may AIMCO Operating Partnership termination of your be withheld in its sole and Agreement, including the partnership under the tax absolute discretion. After general partner's right of code, (5) if required by the the expiration of one year, first refusal. See general partner, the such holders of Preferred OP "Description of OP Units -- assignor or the assignee Units has the right to Transfers and Withdrawals" pays all costs and fees transfer all or any portion in the accompanying associated with the of its Preferred OP Units to Prospectus. transaction, (6) the any person, subject to the transfer complies with all satisfaction of certain After the first anniversary applicable law, including conditions specified in the of becoming a holder of Federal and state securities AIMCO Operating Partner- Common OP Units, an OP laws, (7) the transfer of ship Agreement, including Unitholder has the right, the interest is not smaller the general partner's right subject to the terms and than $20,000 or would cause of first refusal. conditions of the AIMCO your partnership to possess Operating Partnership the characteristic of "free After a one-year holding Agreement, to require the transferability of period, a holder may redeem AIMCO Operating Partnership interests" under the Preferred OP Units and to redeem all or a portion Treasury Regulations and (8) receive in exchange of the Common OP Units held the assignor and assignee therefor, at the AIMCO Oper- by such party in exchange have complied with such ating Partnership's option, for a cash amount based on other conditions as set (i) subject to the terms of the value of shares of Class forth in your partnership's any Senior Units (as defined A Common Stock. See agreement of limited below), cash in an amount "Description of OP partnership. equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying There are no redemption OP Units tendered for Prospectus. Upon receipt of rights associated with your redemption, (ii) a number of a notice of redemption, the units. shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-84 5113 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each that such shares are part of Common OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-85 5114 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-86 5115 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-87 5116 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-88 5117 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-89 5118 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-90 5119 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-91 5120 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-92 5121 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for
S-93 5122 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class The trustee may sell the Class I Preferred A Common Stock of AIMCO that is equal in Stock held in the trust to AIMCO or a value to the Liquidation Preference of the person, designated by the trustee, whose Preferred OP Units tendered for redemption, ownership of the Class I Preferred Stock or (iii) for Preferred OP Units redeemed will not violate the Class I Preferred after a two-year holding period, a number of Ownership Limit. Upon such sale, the shares of Class I Preferred Stock of AIMCO interest of the charitable beneficiaries in that pay an aggregate amount of dividends the shares sold will terminate and the equivalent to the distributions on the trustee will distribute to the prohibited Preferred OP Units tendered for redemption; transferee, the lesser of (i) the price paid provided that such shares are part of a by the prohibited transferee for the shares class or series of preferred stock that is or if the prohibited transferee did not give then listed on the NYSE or another national value for the shares in connection with the securities exchange. The Preferred OP Units event causing the shares to be held in the may not be redeemed at the option of the trust, the market price of such shares on AIMCO Operating Partnership. See the day of the event causing the shares to "Description of Preferred OP be held in the trust and (ii) the price per Units -- Redemption." share received by the trustee from the sale or other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-94 5123 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $22,500 (which may be increased pro rata to up to $36,000 if, in the discretion of the general partner, the offering of units is increased to $16,180,000) beginning in 1991, increasing annually at a rate of 6% beginning in 1992 from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $137,205 in 1996, $152,785 in 1997 and $163,073 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-95 5124 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $1,146,597 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $15,000 Other....................................................... $ 5,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-96 5125 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statement of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... F-8 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996................................ F-9 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1997 and 1996................ F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996................................ F-11 Notes to Consolidated Financial Statements.................. F-12 Independent Auditors' Report................................ F-16 Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................... F-17 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................................ F-18 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1996 and 1995................ F-19 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................................ F-20 Notes to Consolidated Financial Statements.................. F-21
F-1 5126 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 (unaudited)............................ F-3 Condensed Statement of Cash Flows for the nine months ended September 30, 1998 (unaudited)............................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... F-8 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996................................ F-9 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1997 and 1996................ F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996................................ F-11 Notes to Consolidated Financial Statements.................. F-12 Independent Auditors' Report................................ F-16 Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................... F-17 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................................ F-18 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1996 and 1995................ F-19 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................................ F-20 Notes to Consolidated Financial Statements.................. F-21
F-1 5127 TEXAS RESIDENTIAL INVESTORS LP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 556,262 Receivables and deposits.................................... 844,964 Other assets................................................ 1,117,299 Investment property Land...................................................... $ 1,694,963 Building and related personal property.................... 13,628,060 ----------- 15,323,023 ----------- Less: Accumulated depreciation............................ (3,239,164) 12,083,859 ----------- ----------- Total assets...................................... $14,602,384 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 39,521 Other accrued liabilities................................... 58,420 Property taxes payable...................................... 619,057 Tenant security deposits.................................... 96,217 Notes payable............................................... 5,988,917 Partners' capital................................. 7,800,252 ----------- Total liabilities and partners' capital........... $14,602,384 ===========
F-2 5128 TEXAS RESIDENTIAL INVESTORS LP CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $2,343,023 $2,262,952 Other income.............................................. 115,361 117,526 ---------- ---------- Total revenues.................................... 2,458,384 2,380,478 Expenses: Operating expenses........................................ 894,957 936,119 General and administrative expenses....................... 271,089 294,019 Depreciation expense...................................... 366,435 366,435 Interest expense.......................................... 344,467 348,914 Property tax expense...................................... 266,368 310,857 ---------- ---------- Total expenses.................................... 2,143,316 2,256,344 ---------- ---------- Net income........................................ $ 315,068 $ 124,134 ========== ==========
F-3 5129 TEXAS RESIDENTIAL INVESTORS LP CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 --------- --------- Operating activities: Net income................................................ $ 315,068 $ 124,134 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 421,347 421,347 Changes in accounts: Receivables and deposits and other assets.............. (269,910) 39,912 Accounts payable and accrued expenses.................. 60,817 (58,462) --------- --------- Net cash provided by operating activities......... 527,322 526,931 --------- --------- Investing activities: Property improvements and replacements.................... (485,604) (152,044) Net cash used in investing activities..................... (485,604) (152,044) --------- --------- Financing activities: Payments on mortgage...................................... (74,598) (69,782) --------- --------- Net cash used in financing activities..................... (74,598) (69,782) --------- --------- Net decrease in cash and cash equivalents................. (32,880) 305,105 Cash and cash equivalents at beginning of year............ 589,142 182,335 --------- --------- Cash and cash equivalents at end of period................ $ 558,262 $ 487,440 ========= =========
F-4 5130 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Texas Residential Investors Limited Partnership and Subsidiary as of September 30, 1998 and for the nine months ended September 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 5131 INDEPENDENT AUDITORS' REPORT To the Partners Texas Residential Investors Limited Partnership We have audited the accompanying consolidated balance sheets of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' capital and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1997 and 1996, and the results of their operations, and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 9, 1998 F-7 5132 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,755,376 $ 1,755,376 Buildings and improvements, net of accumulated depreciation of $2,877,870 and $2,389,290.............. 10,209,314 10,495,169 ----------- ----------- 11,964,690 12,250,545 Other Assets Cash and cash equivalents................................. 589,142 182,335 Accounts receivable and other assets...................... 121,823 133,718 Repair escrow............................................. 48,200 48,200 Mortgage escrow deposits.................................. 458,540 380,214 Tenant security deposits -- funded........................ 86,653 206,302 Deferred costs, net of accumulated amortization of $330,683 and $459,234.................................. 1,032,049 1,105,263 ----------- ----------- $14,301,092 $14,306,577 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liability Applicable to Investment in Real Estate Mortgages payable......................................... $ 6,063,515 $ 6,156,558 ----------- ----------- Other Liabilities Accounts payable.......................................... 104,439 103,581 Accrued real estate taxes................................. 420,834 326,710 Accrued interest payable -- mortgage...................... 39,045 -- Accrued expense........................................... 101,870 88,223 Tenant security deposits.................................. 86,210 84,137 ----------- ----------- 752,398 602,651 ----------- ----------- Partners' Capital........................................... 7,485,184 7,547,368 ----------- ----------- $14,301,092 $14,306,577 =========== ===========
See notes to consolidated financial statements F-8 5133 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Revenue Rental.................................................... $3,017,269 $2,661,069 Interest.................................................. 21,102 16,717 Other..................................................... 135,599 135,296 ---------- ---------- Total revenue..................................... 3,173,970 2,813,082 ---------- ---------- Operating expenses Leasing................................................... 75,370 68,072 General and administrative................................ 392,025 291,590 Management fees........................................... 195,341 185,382 Utilities................................................. 276,841 272,717 Repairs and maintenance................................... 307,337 381,099 Janitorial................................................ 36,659 31,098 Painting and decorating................................... 66,042 75,120 Insurance................................................. 105,142 123,810 Taxes..................................................... 414,476 423,082 ---------- ---------- Total operating expenses.......................... 1,869,233 1,851,970 ---------- ---------- Other expenses Interest expense-mortgage................................. 465,218 475,477 Depreciation.............................................. 488,580 453,856 Amortization.............................................. 73,214 75,469 Partnership expenses...................................... 112,213 72,988 ---------- ---------- Total other expenses.............................. 1,139,225 1,077,790 ---------- ---------- Total expenses.................................... 3,008,458 2,929,760 ---------- ---------- Net income (loss)................................. $ 165,512 $ (116,678) ========== ========== Net income (loss) allocated to general partner.............. $ 1,655 $ (1,167) ========== ========== Net income (loss) allocated to limited partners............. $ 163,857 $ (115,511) ========== ==========
See notes to consolidated financial statements F-9 5134 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Balance, December 31, 1995............................. $(464,083) $14,350,351 $13,886,268 Net loss............................................. (1,167) (115,511) (116,678) Distributions to partners............................ (6,222) (6,216,000) (6,222,222) --------- ----------- ----------- Balance, December 31, 1996............................. (471,472) 8,018,840 7,547,368 Net income........................................... 1,655 163,857 165,512 Distributions to partners............................ (58,324) (169,372) (227,696) --------- ----------- ----------- Balance, December 31, 1997............................. $(528,141) $ 8,013,325 $ 7,485,184 ========= =========== ===========
See notes to consolidated financial statements F-10 5135 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 --------- ----------- Cash flows from operating activities Net income (loss)......................................... $ 165,512 $ (116,678) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation........................................... 488,580 453,856 Amortization........................................... 73,214 75,469 Decrease (increase) in accounts receivable and other assets................................................ 11,895 (41,400) Increase in mortgage escrow deposits................... (78,326) (322,470) Increase (decrease) in accounts payable................ 858 (39,586) Increase in accrued real estate taxes.................. 94,124 262,238 Increase (decrease) in net security deposits........... 121,722 (115,479) Increase in accrued expenses........................... 13,647 51,194 Increase in accrued interest payable -- mortgage....... 39,045 -- --------- ----------- Net cash provided by operating activities......... 930,271 207,144 --------- ----------- Cash flows from investing activities Investment in real estate................................. (202,725) (265,969) --------- ----------- Net cash used in investing activities............. (202,725) (265,969) --------- ----------- Cash flows from financing activities Mortgages principal payments.............................. (93,043) (79,351) Distributions to partners................................. (227,696) (6,222,222) --------- ----------- Net cash used in financing activities............. (320,739) (6,301,573) --------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 406,807 (6,360,398) Cash and cash equivalents, beginning........................ 182,335 6,542,733 --------- ----------- Cash and cash equivalents, ending........................... $ 589,142 $ 182,335 ========= =========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 426,173 $ 475,477 ========= ===========
See notes to consolidated financial statements F-11 5136 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Texas Residential Investors Limited Partnership (the "Partnership" or the "Investor Partnership"), a limited partnership, was formed on March 21, 1991 under the laws of the State of Delaware for the purpose of holding a general partnership interest in Texas Apartment Investors General Partnership (the "Operating Partnership"). The Operating Partnership has acquired three properties consisting of an aggregate of 540 market-rate rental apartment units, located in the Houston area and in Dallas, Texas. The Investor Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Investor Partnership Agreement. The general partner of the Investor Partnership is Winthrop Properties Limited Partnership ("WPLP"), which is a Delaware limited partnership. The initial limited partner of the Investor Partnership was AC Realty Co., Inc., which withdrew from the Partnership upon the first admission of investors. The Investor Partnership sold 168 limited partnership units at $100,000 per unit. Principles of Consolidation and Subsidiary The consolidated financial statements include all the accounts of Texas Residential Investors Limited Partnership and its majority-owned subsidiary, Texas Apartment Investors General Partnership. All intercompany balances have been eliminated in consolidation. Pursuant to the Operating Partnership's general partnership agreement, the Investor Partnership has significant control over major decisions, such as the sale or refinancing of the Operating Partnership. Accordingly, the accompanying consolidated financial statements have been consolidated and have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Deferred Costs Deferred costs which consist of loan fees, are capitalized and amortized using the straight-line method over the term of the related agreement. Investment in Real Estate Investment in real estate is carried at cost. The Operating Partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful life for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Operating Partnership and tenants of the properties are operating leases. F-12 5137 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes No provision is made for federal, state or local income taxes in the consolidated financial statements of the Partnership. Partners are required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Cash Equivalents For purposes of the consolidated statements of cash flows, the Investor and Operating Partnerships consider all highly liquid investments with maturities of less than three months to be cash equivalents. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the Operating Partnership obtained two mortgage loans by the same lender in the aggregate amount of $6,235,909, which are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.61%. Principal and interest are payable by the Operating Partnership in monthly installments of $46,530. A balloon payment of approximately $5,656,731 and the accrued interest is payable in full on December 1, 2002. Under agreements with the mortgage lender, the Operating Partnership is required to make monthly escrow deposits for taxes and insurance. The Operating Partnership was required to make an initial deposit into a repair escrow for repairs to the project upon obtaining the two mortgages in 1995. The liability of the Operating Partnership under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998................................................. $ 90,418 1999................................................. 97,554 2000................................................. 105,253 2001................................................. 113,559 2002................................................. 5,656,731
NOTE C -- ACQUISITION OF THE PROPERTIES The Partnership owns a 99.9% general partnership interest in the Operating Partnership which was formed to acquire, renovate, own and operate certain residential apartments located in the Houston and Dallas, Texas metropolitan areas. In 1990, the Operating Partnership acquired three separate residential apartment complexes for an aggregate purchase price of $11,935,000 beginning on May 1, 1990, with the purchase of Crossbridge Apartments for $2,660,000. On October 16, 1990, the Park at Deerbrook and Ryan's Pointe Apartments were purchased for $2,350,000 and $6,925,000, respectively. NOTE D -- RELATED PARTY TRANSACTIONS The Investor Partnership and Operating Partnership have incurred charges and commitments to affiliates of its general partner. Related party transactions include the following: (a)The Operating Partnership paid to an affiliate of the general partner, Winthrop Management, an annual property management fee equal to 5% of gross operating revenues for the properties through F-13 5138 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) October 27, 1997. Fees of $126,876 and $137,205 were charged to operations for the years ended December 31, 1997 and 1996, respectively. (b)On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent, and appointed Insignia Residential Group, L.P. ("Insignia") as the new management agent (see note G to the financial statements). The management agreement provides for a management fee equal to 5% of gross operating revenues for the properties. Fees of $25,909 were charged to operations for the year ended December 31, 1997. (c)The Investor Partnership paid an annual administration and investor service fee to an affiliate of Winthrop which were to increase 6% per year. Fees of $42,556 and $48,177 were charged to operations for the years ended December 31, 1997 and 1996, respectively. (d)Effective October 28, 1997, the Investor Partnership charged operations for the annual administration and investor service fee and costs reimbursements payable to an affiliate of Insignia. Fees and reimbursements of $16,150 are included in partnership expense for the year ended December 31, 1997. At December 31, 1997, $16,150 remains payable. (e)Included in accounts payable at December 31, 1996 was $62,360 due to an affiliate of the general partner in connection with obtaining the Operating Partnership's mortgage loans. NOTE E -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the Investor Partnership Agreement, losses and cash flow are allocated 99% to the limited partners and 1% to the general partner and income is allocated to the partners in proportion to cash distributed to the partners. If there is no such cash available for distribution, income is allocated 95% to the limited partners and 5% to the general partner. NOTE F -- CONCENTRATION OF CREDIT RISK The Operating Partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1997, the uninsured portion of the cash balances at both banks totaled $364,930. NOTE G -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the Class B stock of First Winthrop Corporation, an affiliate of the general partner (WPLP). F-14 5139 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [WINTHROP LOGO] F-15 5140 INDEPENDENT AUDITORS' REPORT To the Partners Texas Residential Investors Limited Partnership We have audited the accompanying consolidated balance sheets of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1996 and 1995, and the results of their operations, and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 21, 1997 F-16 5141 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,755,376 $ 1,755,376 Buildings and improvements, net of accumulated depreciation of $2,389,290 and $1,935,434.............. 10,495,169 10,683,056 ----------- ----------- 12,250,545 12,438,432 Other Assets Cash and cash equivalents................................. 182,335 6,542,733 Accounts receivable and other assets...................... 133,718 92,318 Repair escrow............................................. 48,200 48,200 Mortgage escrow deposits.................................. 380,214 57,744 Tenant security deposits -- funded........................ 206,302 77,936 Deferred costs, net of accumulated amortization of $459,234 and $383,765........................................... 1,105,263 1,118,372 ----------- ----------- $14,306,577 $20,375,735 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liability Applicable to Investment in Real Estate Mortgages payable......................................... $ 6,156,558 $ 6,235,909 ----------- ----------- Other Liabilities Accounts payable.......................................... 103,581 80,807 Accrued real estate taxes................................. 326,710 64,472 Accrued expense and other liabilities..................... 88,223 37,029 Tenant security deposits.................................. 84,137 71,250 ----------- ----------- 602,651 253,558 ----------- ----------- Partners' Capital........................................... 7,547,368 13,886,268 ----------- ----------- $14,306,577 $20,375,735 =========== ===========
See notes to consolidated financial statements F-17 5142 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- Revenues Rental.................................................... $2,661,069 $2,701,538 Interest.................................................. 16,717 42,613 Other..................................................... 135,296 121,658 ---------- ---------- Total revenues.................................... 2,813,082 2,865,809 ---------- ---------- Operating expenses Leasing................................................... 68,072 43,003 General and administrative................................ 291,590 343,180 Management fees........................................... 185,382 183,949 Utilities................................................. 272,717 274,895 Repairs and maintenance................................... 381,099 436,893 Janitorial................................................ 31,098 46,370 Painting and decorating................................... 75,120 58,806 Insurance................................................. 123,810 92,025 Taxes..................................................... 423,082 408,044 ---------- ---------- Total operating expenses.......................... 1,851,970 1,887,165 ---------- ---------- Other expenses Interest expense -- mortgage.............................. 475,477 -- Depreciation.............................................. 453,856 401,610 Amortization.............................................. 75,469 45,508 Partnership expenses...................................... 72,988 33,500 ---------- ---------- Total other expenses.............................. 1,077,790 480,618 ---------- ---------- Total expenses.................................... 2,929,760 2,367,783 ---------- ---------- Net income (loss)................................. $ (116,678) $ 498,026 ========== ========== Net income (loss) allocated to general partner.............. $ (1,167) $ 4,980 ========== ========== Net income (loss) allocated to limited partners............. $ (115,511) $ 493,046 ========== ==========
See notes to consolidated financial statements F-18 5143 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Balance, December 31, 1994............................. $(462,691) $14,488,145 $14,025,454 Net income........................................... 4,980 493,046 498,026 Distributions........................................ (6,372) (630,840) (637,212) --------- ----------- ----------- Balance, December 31, 1995............................. (464,083) 14,350,351 13,886,268 Net loss............................................. (1,167) (115,511) (116,678) Distributions........................................ (6,222) (6,216,000) (6,222,222) --------- ----------- ----------- Balance, December 31, 1996............................. $(471,472) $ 8,018,840 $ 7,547,368 ========= =========== ===========
See notes to consolidated financial statements F-19 5144 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1996 1995 ----------- ---------- Cash flows from operating activities Net income (loss)......................................... $ (116,678) $ 498,026 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation........................................... 453,856 401,610 Amortization........................................... 75,469 45,508 Increase in accounts receivable and other assets....... (41,400) (53,573) Increase in mortgage escrow deposits................... (322,470) (57,744) (Decrease) increase in accounts payable................ (39,586) 38,251 Increase (decrease) in accrued real estate taxes....... 262,238 (269,311) Decrease in net security deposits...................... (115,479) (17,300) Increase (decrease) in accrued expenses and other liabilities........................................... 51,194 (2) ----------- ---------- Net cash provided by operating activities......... 207,144 585,465 ----------- ---------- Cash flows from investing activities Investment in real estates................................ (265,969) (325,463) Increase in repair escrow................................. -- (48,200) ----------- ---------- Net cash used in investing activities............. (265,969) (373,663) ----------- ---------- Cash flows from financing activities Mortgages principal payments.............................. (79,351) -- Proceeds from mortgage loans.............................. -- 6,235,909 Distributions............................................. (6,222,222) (637,212) Increase in deferred costs................................ -- (159,829) ----------- ---------- Net cash provided by (used in) financing activities...................................... (6,301,573) 5,438,868 ----------- ---------- Net increase (decrease) in cash and cash equivalents..................................... (6,360,398) 5,650,670 Cash and cash equivalents, beginning........................ 6,542,733 892,063 ----------- ---------- Cash and cash equivalents, ending........................... $ 182,335 $6,542,733 =========== ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 475,477 $ -- =========== ==========
See notes to consolidated financial statements F-20 5145 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Texas Residential Investors Limited Partnership (the "Partnership" or the "Investor Partnership"), a limited partnership, was formed on March 21, 1991 under the laws of the State of Delaware for the purpose of holding a general partnership interest in Texas Apartment Investors General Partnership (the "Operating Partnership"). The Operating Partnership has acquired three properties consisting of an aggregate of 540 market-rate rental apartment units, located in the Houston area and in Dallas, Texas. The Investor Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Investor Partnership Agreement. The general partner of the Investor Partnership is Winthrop Properties Limited Partnership ("WPLP"), which is a Delaware limited partnership. The initial limited partner of the Investor Partnership was AC Realty Co., Inc., which withdrew from the Partnership upon the first admission of investors. The Investor Partnership sold 168 limited partnership units at $100,000 per unit. Principles of Consolidation and Subsidiary The consolidated financial statements include all the accounts of Texas Residential Investors Limited Partnership and its majority-owned subsidiary, Texas Apartment Investors General Partnership. All intercompany balances have been eliminated in consolidation. Pursuant to the Operating Partnership's General Partnership agreement, the Investor Partnership has significant control over major decisions, such as the sale or refinancing of the Operating Partnership. Accordingly, the accompanying consolidated financial statements have been consolidated and have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Deferred Costs Deferred costs which consist of loan fees, are capitalized and amortized using the straight-line method over the term of the related agreement. Investment in Real Estate Investment in real estate is carried at cost. The Operating Partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful life for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Operating Partnership and tenants of the properties are operating leases. F-21 5146 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes No provision is made for federal, state or local income taxes in the consolidated financial statements of the Partnership. Partners are required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Cash Equivalents For purposes of the consolidated statements of cash flows, the Investor and Operating Partnerships consider all highly liquid investments with maturities of less than three months to be cash equivalents. The carrying amount of $171,943 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the Operating Partnership obtained two mortgage loans by the same lender in the aggregate amount of $6,235,909 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.62%. Principal and interest are payable by the Operating Partnership in monthly installments of $45,921. A balloon payment of approximately [MISSING COPY] Under agreements with the mortgage lender, the Operating Partnership is required to make monthly escrow deposits for taxes and insurance. The Operating Partnership was required to make an initial deposit into a repair escrow for repairs to the project upon obtaining the two mortgages in 1995. The liability of the Operating Partnership under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1997................................................... $ 83,804 1998................................................... 90,418 1999................................................... 97,554 2000................................................... 105,253 2001................................................... 113,559
NOTE C -- ACQUISITION OF THE PROPERTIES The Partnership owns a 99.9% general partnership interest in the Operating Partnership which was formed to acquire, renovate, own and operate certain residential apartments located in the Houston and Dallas, Texas metropolitan areas. In 1990, the Operating Partnership acquired three separate residential apartment complexes for an aggregate purchase price of $11,935,000 beginning on May 1, 1990, with the purchase of Crossbridge Apartments for $2,660,000. On October 16, 1990, the Park at Deerbrook and Ryan's Pointe Apartments were purchased for $2,350,000 and $6,925,000, respectively. NOTE D -- RELATED PARTY TRANSACTIONS The Investor Partnership and Operating Partnership have incurred charges and commitments to affiliates of its general partner. Related party transactions include the following: (a) The Operating Partnership pays to an affiliate, Winthrop Management, an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $137,205 and $138,499 were charged to operations for the years ended December 31, 1996 and 1995, respectively. F-22 5147 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (b) The Investor Partnership pays an annual administration and investor service fee to an affiliate which increases 6% per year. Fees of $48,177 and $45,450 were charged to operations for the years ended December 31, 1996 and 1995, respectively. (c) Included in accounts payable at December 31, 1996 is $62,360 due to an affiliate of the general partner in connection with obtaining the operating partnership's mortgage loans. NOTE E -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the Investor Partnership Agreement, losses and cash flow are allocated 99% to the limited partners and 1% to the general partner and income is allocated to the partners in proportion to cash distributed to the partners. If there is no such cash available for distribution, income is allocated 95% to the limited partners and 5% to the general partner. F-23 5148 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 5149 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 5150 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 5151 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 5152 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 5153 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 5154 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 5155 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 5156 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 5157 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 5158 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 5159 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 5160 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 5161 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 5162 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 5163 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 5164 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 5165 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 5166 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 5167 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 5168 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 5169 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 5170 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 5171 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 5172 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 5173 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 5174 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 5175
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 5176 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 5177
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 5178 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5179 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5180 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5181
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5182 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5183 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5184 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5185
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5186 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5187 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5188 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 5189 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 5190 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 5191 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 5192 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 5193 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 5194 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 5195 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5196 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 5197 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 5198 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: TEXAS RESIDENTIAL INVESTORS L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of TEXAS RESIDENTIAL INVESTORS L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $36,987 in cash, or 960.75 Common OP Units of the Purchaser, or 1,479.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5199 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 5200 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5201 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 5202
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 5203
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 5204
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 5205
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5206 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5207 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Thurber Manor Associates, L.P. in exchange for your choice of: 1,858.50 of our 8.0% Class Two Partnership Preferred Units; 1,201.00 of our Partnership Common Units; or $46,460 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $46,460 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5208 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Thurber Manor Associates, L.P...................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-38 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58
i 5209
PAGE ----- Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5210 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S- of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,515,000, less approximately $318,707 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 5211 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5212 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2008 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $3,717 per year on the number of Preferred OP Units, or distributions of $3,002.50 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 5213 partnership's units. During 1998, your partnership made no cash distributions. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 5214 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $1,962,165 of balloon payments due on its mortgage debt in 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership S-5 5215 interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payment of $1,962,165. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 5216 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,717 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,002.50 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 5217 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 5218 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g. "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 378,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... $ 3,515,000 Plus: Cash and cash equivalents............................. 112,133 Plus: Other partnership assets, net of security deposits.... 169,995 Less: Mortgage debt, including accrued interest............. (2,470,561) Less: Accounts payable, and accrued interest................ (20,638) Less: Other liabilities..................................... 0 ----------- Partnership valuation before taxes and certain costs........ 1,305,929 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (318,707) Less: Closing costs......................................... (87,875) ----------- Estimates net valuation of your partnership................. 899,347 Percentage of estimated net valuation allocated to units.... 96.86% ----------- Estimated net valuation of units............................ 871,125 Total number of units............................. 18.75 ----------- Estimated valuation per unit................................ 46,460 =========== Cash consideration per unit................................. $ 46,460 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $46,460 by the $25 liquidation preference of each Preferred OP Unit to get 1,858.50 Preferred OP Units per unit. S-9 5219 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $46,460 by a price of $38.69 to get 1,201.00 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 46,460 Partnership Preferred Units................................. $ 46,460 Partnership Common Units.................................... $ 46,460 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 46,460 Estimated going concern value............................. $ 39,997 Net book value (deficit).................................. $(1,027,549)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 5220 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Thurber Manor Associates, L.P. is a Delaware limited partnership which was formed on July 31, 1984 for the purpose of owning and operating an apartment property located in Columbus, Ohio, known as "Thurber Manor Apartments." Thurber Manor Apartments consists of 115 units and was built in 1965. Your partnership has no employees. As of September 30, 1998, there were 18.75 units of limited partnership interest issued and outstanding, which were held of record by 46 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,875,000 of limited partnership units in 1984. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $2,799 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate in 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,302,115, payable to Bank of America, which bears interest at the rate of 7.6%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of 83,190, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 5221 THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,858.50 of our Class Two Partnership Preferred Units; - 1,201.00 of our Partnership Common Units; or - $46,460 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 18.75 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,858.50 Preferred OP Units, 1,201.00 Common OP Units, or $46,460 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 5222 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 5223 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $46,460 in cash, 1,858.50 Preferred OP Units or 1,201.00 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I S-14 5224 Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $46,460. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $18,316 for the fiscal year ended December 31, 1998. The property manager received management fees of $40,991 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $217,781 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5225 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5226
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5227 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5228
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5229 SUMMARY FINANCIAL INFORMATION OF THURBER MANOR ASSOCIATES, L.P. The summary financial information of Thurber Manor Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Thurber Manor Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." THURBER MANOR ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues................ $ 617,344 $ 587,310 $ 795,109 $ 761,858 $ 727,990 $ 696,977 $ 682,707 Net Income/(Loss)............. 79,733 71,070 67,064 40,456 52,035 (19,820) (59,165) Net Income (Loss) per limited partnership unit............ 303 270 255 154 198 (75) (225) Distributions per limited partnership unit............ -- -- -- 57.00 76.00 73.91 --
SEPTEMBER 30, DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents..... $ 118,348 $ 110,217 $ 112,135 $ 150,747 $ 129,559 $ 178,230 $ 195,692 Real Estate, Net of Accumulated Depreciation.... 1,064,324 1,090,974 1,078,012 1,084,236 1,044,589 983,025 1,037,970 Total Assets.................. 1,440,067 1,435,353 1,437,774 1,466,897 1,435,394 1,444,167 1,530,083 Notes Payable................. 2,299,758 2,357,605 2,356,670 2,408,823 2,456,618 2,500,418 2,540,556 General Partners' Capital/ (Deficit)..................... (947,816) (1,023,598) (1,027,549) (1,094,613) (1,120,069) (1,152,104) (1,112,834) Limited Partners' Capital/ (Deficit)..................... -- -- -- -- -- -- -- Partners' Deficit............... (947,816) (1,023,598) (1,027,549) (1,094,613) (1,120,069) (1,152,104) (1,112,834) Total Distributions............. -- -- -- 15,000 20,000 19,450 -- Net increase (decrease) in cash and cash equivalents.......... 6,213 (40,530) (38,612) 21,188 (30,035) (13,557) 20,965 Net cash provided by operating activities.................... 118,876 86,390 118,186 209,852 153,331 115,204 135,723 Ratio of earnings to fixed charges....................... 1.56/1 1.49/1 1.30/1 1.18/1 1.23/1 0.91/1 0.74/1 1.56 1.49 1.30 1.18 1.23 0.91 0.74
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO OPERATING THURBER MANOR PARTNERSHIP ASSOCIATES, L.P. ------------ ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ---------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $3,002.50 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $ 3,717 $ 0
S-20 5230 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 5231 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,515,000 less approximately $318,707 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 5232 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 5233 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2008 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 5234 is equivalent to distributions of $3,717 per year on the number of Preferred OP Units, or distributions of $3,002.50 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership made no cash distributions. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 5235 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately a $1,962,165 balloon payment due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment date, or it will be in default and could lose the property to foreclosure. S-26 5236 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest, consisting of a 0% limited partnership interest and a .992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 5237 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 5238 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $71,070 for the nine months ended September 30, 1997, to $79,733 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November 2002 and require a balloon payment totaling $1,962,165. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an S-29 5239 offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's property from your partnership. However, a sale of your partnership's properties would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 5240 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $3,717 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership made no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $3,002.50 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 5241 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall S-32 5242 property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Thurber Manor Apartments Estimated Total Gross Property Value..... $378,000 10.75% $3,515,000
- --------------- (1) The total net operating income is equal to total revenues of $790,103, less total expenses of $377,780 and recurring replacement costs of $34,500. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $899,347. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 96.86% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 378,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership properties................... 3,515,000 Plus: Cash and cash equivalents............................. 112,133 Plus: Other partnership assets, net of security deposits.... 169,995 Less: Mortgage debt, including accrued interest............. (2,470,561) Less: Accounts payable and accrued expenses................. (20,638) Less: Other liabilities..................................... 0 ----------- Partnership valuation before taxes and certain costs........ 1,305,929 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (318,707) Less: Closing costs......................................... (87,875) ----------- Estimated net valuation of your partnership................. 899,347 Percentage of estimated net valuation allocated to holders of units.................................................. 96.86% ----------- Estimated net valuation of units............................ 871,125 Total number of units............................. 18.75 ----------- Estimated valuation per unit................................ 46,460 =========== Cash consideration per unit................................. 46,460 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $46,460 by the $25 liquidation preference of each Preferred OP Unit to get 1,858.50 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $46,460 by a price of $38.69 to get 1,201.00 Common OP Units S-33 5243 per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $899,347 or .16% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from $71,070 for the nine months ended September 30, 1997 to $79,733 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. S-34 5244 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $46,460, based on a total estimated value of your partnership's property of $3,515,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $3,717 per year on the number of Preferred OP Units, or distributions of $3,002.50 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $ 0 . See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. S-35 5245 The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 5246 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2008, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT ----------- Cash offer price............................................ $ 46,460 Partnership preferred units................................. 46,460(1) Partnership common units.................................... 46,460(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $ 46,460 Estimated going concern value............................. $ 39,997 Net book value (deficit).................................. $(1,027,549)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 5247 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $39,997 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $(54,803) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 96.86% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $51,888 per unit, going concern value of $41,853 per unit and liquidation value S-38 5248 of $47,699 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(5,482), $4,607 and $1,239. In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial S-39 5249 advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property;] (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
THURBER MANOR APARTMENTS ---------- Total Revenues.............................................. $ 820,935 Operating Expenses.......................................... (396,716) Replacement Reserves -- Net................................. (215,615) Debt Service................................................ (260,604) Capital Expenditures........................................ (26,100) --------- Net Cash Flow Deficit............................. $ (78,100) =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. S-40 5250 The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, S-41 5251 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $318,707. Stanger observed that your partnership liquidation value of $899,347 was allocated 96.86% to the limited partners and divided by the total units outstanding of 18.75 to provide the liquidation value per unit of $46,460. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $378,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.25%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 18.75 to achieve management's estimate of going concern value of $39,997 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $46,460 per unit is equal to management's estimate of liquidation value, and reflects a 15% premium to management's estimate of going concern value of $39,997. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year, preferred stock of AIMCO with a dividend equal to the dividend on the Preferred OP Units. Stanger observed that the ten day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. S-42 5252 In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.75%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rates of 11.25%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (13.25% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 65% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $51,888, $41,853 and $47,699 representing premiums (discounts) to the offer price of 11.6%, (9.9)% and 2.6%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the S-43 5253 information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 5254 YOUR PARTNERSHIP GENERAL Thurber Manor Associates is an Delaware limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 46 limited partners of your partnership and a total of 18.75 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 31, 1984 for the purpose of owning an apartment property located in Columbus, Ohio, known as "Thurber Manor Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1965 and consists of 115 apartment units. Your partnership's property had an average occupancy rate of approximately 96.61% in 1998, 96.52% in 1997 and 96.52% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $318,707 and are intended to be paid for out of cash flow or borrowings. Major renovation items include heating, ventilation and air conditioning systems, ("HVAC"), gutters and downspouts, exterior paint, balconies, sidewalks and fence. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $541 $511 $498 $475 $474
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $57,452 of $1,024,100 of assessed valuation with a current yearly tax rate of 5.61%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 5.89% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-45 5255 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 97% and $564, respectively, at December 31, 1998, compared to 97% and $541, respectively, at December 31, 1997. Although there can be no assurance as to the general partner expects this trend to continue in the near future because the market in Augusta, Georgia is very strong. In addition, the general partner noted that it expects to spend approximately $318,707 for capital improvements at the property in 1999 to repair the property's HVAC, gutters, exterior paint, balconies and fence. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,302,115, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $83,190, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the S-46 5256 general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,875,000 of limited partnership units in 1984 for $100,000 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, the general partner of your partnership is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner will not incur any liability to your partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited partnership. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 5257 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $100,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 1,000 700 0 4,688 1995................................... 1,029 720 0 4,820 1996................................... 771 540 0 3,615 1997................................... 0 0 0 0 1998................................... 0 0 0 0 ------ ------ -- ------- Total........................ $2,800 $1,960 $0 $13,123
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest in your partnership, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 5258 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ Not available 1995........................................................ $30,165 1996........................................................ 25,434 1997........................................................ 26,608 1998........................................................ 18,316
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ Not available 1995........................................................ $36,107 1996........................................................ 37,726 1997........................................................ 39,386 1998........................................................ 40,991
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 5259 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents...... $ 118,348 $ 110,217 $ 112,135 $ 150,747 $ 129,559 $ 178,230 $ 195,692 Land & Building................ 3,233,876 3,173,579 3,182,354 3,101,631 2,982,482 2,855,793 2,798,267 Accumulated Depreciation....... (2,169,552) (2,082,605) (2,104,342) (2,017,395) (1,937,893) (1,872,768) (1,760,297) Other Assets................... 257,395 234,162 247,627 231,914 261,246 282,912 296,431 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $ 1,440,067 $ 1,435,353 $ 1,437,774 $ 1,466,897 $ 1,435,394 $ 1,444,167 $ 1,530,093 =========== =========== =========== =========== =========== =========== =========== Notes Payable.................. $ 2,299,758 $ 2,357,605 $ 2,356,670 $ 2,408,823 $ 2,456,618 $ 2,500,418 $ 2,540,556 Other Liabilities.............. 88,125 101,346 108,653 152,687 98,845 95,853 94,047 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $ 2,387,883 $ 2,458,951 $ 2,465,323 $ 2,561,510 $ 2,555,463 $ 2,596,271 $ 2,642,927 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit............... $ (947,816) $(1,023,598) $(1,027,549) $(1,094,613) $(1,120,069) $(1,152,104) $(1,112,834) =========== =========== =========== =========== =========== =========== ===========
THURBER MANOR ASSOC., LTD. ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................. $ 580,115 $ 550,452 $ 747,177 $ 705,499 $ 687,861 $ 656,185 $ 654,026 Other Income................... 37,229 36,858 47,932 56,360 40,129 40,792 28,681 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue.......... $ 617,344 $ 587,310 $ 795,109 $ 761,859 $ 727,990 $ 696,977 $ 682,707 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............. $ 265,189 $ 242,958 $ 335,435 $ 331,812 $ 291,032 $ 298,750 $ 257,683 General & Administrative....... 22,018 18,519 29,848 29,459 33,719 26,584 49,063 Depreciation................... 65,210 65,210 86,947 79,502 75,185 112,471 162,753 Interest Expense............... 141,362 145,515 219,984 224,343 228,338 232,097 224,392 Property Taxes................. 43,832 44,038 55,831 56,287 47,681 46,895 47,981 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses......... $ 537,611 $ 516,240 $ 728,045 $ 721,403 $ 675,955 $ 716,797 $ 741,872 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income before extraordinary items........................ $ 79,733 $ 71,070 $ 67,064 $ 40,456 $ 52,035 $ (19,820) $ (59,165) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Extraordinary Items............ -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss).............. $ 79,733 $ 71,070 $ 67,064 $ 40,456 $ 52,035 $ (19,820) $ (59,165) =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit............. $ 303 $ 270 $ 255 $ 154 $ 198 $ (75) $ (225) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............. $ -- $ -- $ -- $ 57.00 $ 76.00 $ 73.91 $ -- =========== =========== =========== =========== =========== =========== ===========
S-50 5260 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $80,000 for the nine months ended September 30, 1998, compared to $71,000 for the nine months ended September 30, 1997. The increase in net income of $9,000 was primarily the result of an increase in revenues, off-set by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $617,000 for the nine months ended September 30, 1998, compared to $587,000 for the nine months ended September 30, 1997, an increase of $30,000, or 5%. The Partnership was able to increase rental rates by an average of 4.5%, while occupancy remained constant at 96%. Other income was $37,000 for both periods. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $265,000 for the nine months ended September 30, 1998, compared to $243,000 for the nine months ended September 30, 1997, an increase of $22,000, or 9%. The increase is due primarily to higher property maintenance expenses as the Partnership incurred higher exterior building improvements and landscaping costs during 1998 as compared to 1997. Partnership Property management expenses was $30,000 for the nine months ended September 30, 1998, compared to $29,000 for the nine months ended September 30, 1997, an increase of $1,000. This increase is due to the increase in revenues as management fees are paid based on rental revenues. General and administrative expenses increased $3,000 to $22,000, due to higher partnership administrative and asset management fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $141,000 for the nine months ended September 30, 1998, compared to $145,000 for the nine months ended September 30, 1997, a decrease of $4,000, or 2.8%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $67,064 for the year ended December 31, 1997, compared to $40,456 for the year ended December 31, 1996. The increase in net income of $26,608, or 65.8% was primarily the result of an increase in rental revenue due to an increase in occupancy levels and market rent rates. These factors are discussed in more detail in the following paragraphs. S-51 5261 REVENUES Rental and other property revenues from the partnership's property totaled $795,109 for the year ended December 31, 1997, compared to $761,859 for the year ended December 31, 1996, an increase of $33,250, or 4.4%. The Partnership increased rental rates by an average of 4%. Occupancy rates also increased 1.4% to 96.5%. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $335,435 for the year ended December 31, 1997, compared to $331,812 for the year ended December 31, 1996, an increase of $3,623 or 1.1%. Management expenses totaled $39,386 for the year ended December 31, 1997, compared to $37,726 for the year ended December 31, 1996, an increase of $1,600, or 4.4%, due to the increase on rental revenue, as management fees are based on a percentage of revenue. Additionally, there was an increase of $1,512 related to maintenance expense for major landscape improvements and gutter repairs. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $29,848 for the year ended December 31, 1997 compared to $29,459 for the year ended December 31, 1996, an increase of $389 or 1.3%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $219,984 for the year ended December 31, 1997, compared to $224,343 for the year ended December 31, 1996, a decrease of $4,359, or 1.9%. The decrease is due to a lower outstanding balance on mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized net income of $40,456 for the year ended December 31, 1996, compared to $52,035 for the year ended December 31, 1995. The decrease in net income of $11,579, or 22.3% was primarily the result of a greater increase in the operating expenses than in rental revenue. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $761,859 for the year ended December 31, 1996, compared to $727,990 for the year ended December 31, 1995, an increase of $33,869, or 4.7%. The Partnership increased rental rates by an average of 2.6% while occupancy rates remained consistent at 95%. Additionally, other income increased by $16,231 to $56,360 due to additional laundry income from additional washers and dryers. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $331,812 for the year ended December 31, 1996, compared to $291,032 for the year ended December 31, 1995, an increase of $40,780 or 14%. This increase was primarily the result of an increase in expensed exterior property improvements of $30,966 to $101,923. Management expenses totaled $37,726 for the year ended December 31, 1996, compared to $36,107 for the year ended December 31, 1995, an increase of $1,619, or 4.5% which is due to increased rental revenue as management fees are based on a percentage of revenue. S-52 5262 GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $29,495 for the year ended December 31, 1996 compared to $33,719 for the year ended December 31, 1995, a decrease of $4,260 or 12.63%. The decrease is primarily due to general decreases in various administrative expenses. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $224,343 for the year ended December 31, 1996, compared to $228,338 for the year ended December 31, 1995, a decrease of $3,995, or 1.8%. The decrease is due to a lower outstanding balance on mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $118,348 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $90,692, was $2,404,680. The mortgages require monthly payments of approximately $21,230 until November 2002, at which time a balloon payment of approximately $2,117,577 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 5263 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 18.75 units of your partnership (up to 28.75 units) for consideration per unit of (i) 1,858.50 Preferred OP Units, (ii) 1,201.00 Common OP Units, or (iii) $46,460 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 5264 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 5265 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 5266 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 5267 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 5268 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 5269 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 5270 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 5271 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 5272 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 5273 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 5274 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 5275 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 5276 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 5277 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 5278 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 5279 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 5280 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law for the purpose as a Delaware limited partnership. The AIMCO of owning and managing Thurber Manor Operating Partnership owns interests (either Apartments. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Distributable Cash (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2008. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating develop, operate, lease, manage and hold for Partnership is to conduct any business that investment and the production of income your may be lawfully conducted by a limited partnership's property. Subject to partnership organized pursuant to the restrictions contained in your partnership's Delaware Revised Uniform Limited Part- agreement of limited partnership, your nership Act (as amended from time to time, partnership may perform all act necessary or or any successor to such statute) (the appropriate in connection therewith and "Delaware Limited Partnership Act"), reasonably related thereto, including provided that such business is to be acquiring additional real or personal conducted in a manner that permits AIMCO to property, borrowing money and creating be qualified as a REIT, unless AIMCO ceases liens. to qualify as a REIT. The AIMCO Operating Partner-
S-71 5281 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit up to 35 additional limited partnership purpose from time to time to the partners by selling not more than 18.75 limited partners and to other persons, and units for cash and notes to selected persons to admit such other persons as additional who fulfill the requirements set forth in limited partners, on terms and conditions your partnership's agreement of limited and for such capital contributions as may be partnership. The capital contribution need established by the general partner in its not be equal for all limited partners. Upon sole discretion. The net capital admission of such limited partners, an contribution need not be equal for all OP amendment to the certificate of your Unitholders. No action or consent by the OP partnership must be executed and Unitholders is required in connection with acknowledged by the general partner, the the admission of any additional OP original limited partner and by the general Unitholder. See "Description of OP partner as attorney-in-fact for the Units -- Management by the AIMCO GP" in the additional limited partners. accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, the general partner is contribute funds or other assets to its authorized in connection with the management subsidiaries or other persons in which it of your partnership to has an equity investment,
S-72 5282 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP acquire goods from, or utilize the services and such persons may borrow funds from the of, firms and persons affiliated with the AIMCO Operating Partnership, on terms and general partner in performing its duties and conditions established in the sole and responsibilities under your partnership's absolute discretion of the general partner. agreement of limited partnership; provided To the extent consistent with the business that terms and conditions of such dealings purpose of the AIMCO Operating Partnership are as favorable as could be reasonably and the permitted activities of the general obtained from third parties offering similar partner, the AIMCO Operating Partnership may goods and services of similar quality and transfer assets to joint ventures, limited reliability. In the event the general liability companies, partnerships, partner determines that funds are reasonably corporations, business trusts or other necessary for acquiring or maintaining and business entities in which it is or thereby protecting the property of your partnership becomes a participant upon such terms and or conducting its business, the general subject to such conditions consistent with partner is authorized to borrow funds on the AIMCO Operating Partnership Agreement behalf of your partnership on commercially and applicable law as the general partner, reasonable terms from one or more of the in its sole and absolute discretion, partners without notification to any of the believes to be advisable. Except as other partners, and all or a portion of your expressly permitted by the AIMCO Operating partnership's property may be conveyed as Partnership Agreement, neither the general security for any indebtedness; provided, partner nor any of its affiliates may sell, however, that the borrowing from limited transfer or convey any property to the AIMCO partners will be undertaken only to the Operating Partnership, directly or extent allowed by applicable law. The time indirectly, except pursuant to transactions and amounts of repayment for such loans will that are determined by the general partner be in the sole discretion of the general in good faith to be fair and reasonable. partner and payments of principal and inter- est will be fully paid prior to any distribution of funds to the partners unless such loans contain a specific provision to the contrary. The partner who lends money to your partnership will be considered an unrelated creditor with respect to such loans to the extent allowed by applicable law. Any loans from the general partner or its affiliates will accrue interest at the greater of 2 1/2% over the prime interest rate charged by the Third National Bank in Nashville, adjusted monthly, or the general partner's or its affiliate's actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money in the ordinary contains no restrictions on borrowings, and course of business and as security therefore the general partner has full power and to mortgage all or any part of the real authority to borrow money on behalf of the property of your partnership in addition to AIMCO Operating Partnership. The AIMCO obtaining loans specifically provided for in Operating Partnership has credit agreements your partnership's agreement of limited that restrict, among other things, its partnership. ability to incur indebtedness.
S-73 5283 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the have access to the current list of the names purpose of such demand and at such OP and address of all limited partners at all Unitholder's own expense, to obtain a reasonable times at the principal office of current list of the name and last known your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth under All management powers over the business and applicable law and the terms of your affairs of the AIMCO Operating Partnership partnership's agreement of limited are vested in AIMCO-GP, Inc., which is the partnership, the general partner of your general partner. No OP Unitholder has any partnership has the power to do all things right to participate in or exercise control set forth in your partnership's agreement of or management power over the business and limited partnership. The general partner affairs of the AIMCO Operating Partner- represents your partnership in all ship. The OP Unitholders have the right to transactions with third parties. No limited vote on certain matters described under partner has any right or power to take part "Comparison of Your Units and AIMCO OP in any way in the management of your Units -- Voting Rights" below. The general partnership business except as may be partner may not be removed by the OP expressly provided in your partnership's Unitholders with or without cause. agreement of limited partnership or by applicable statutes. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner forth in the AIMCO Operating Partnership will not incur any liabil- Agreement, the
S-74 5284 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ity to your partnership or any other partner general partner is not liable to the AIMCO for any mistakes or errors in judgment or Operating Partnership for losses sustained, for any act or omission believed by it in liabilities incurred or benefits not derived good faith to be within the scope of as a result of errors in judgment or authority conferred upon it by your partner- mistakes of fact or law of any act or ship's agreement of limited partnership. In omission if the general partner acted in addition, your partnership will, to the good faith. The AIMCO Operating Partnership extent permitted by law, indemnify and save Agreement provides for indemnification of harmless the general partner against and AIMCO, or any director or officer of AIMCO from any personal loss, liability (includ- (in its capacity as the previous general ing attorneys' fees) or damage incurred by partner of the AIMCO Operating Partner- it as the result of any act or omission in ship), the general partner, any officer or its capacity as general partner unless such director of general partner or the AIMCO loss, liability or damage results from gross Operating Partnership and such other persons negligence or willful misconduct of the as the general partner may designate from general partner. and against all losses, claims, damages, liabilities, joint or several, expenses (in- cluding legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause the business and affairs of the AIMCO following written notice to the general Operating Partnership. The general partner partner upon a vote of the limited partners may not be removed as general partner of the owning a 51% of the outstanding units. A AIMCO Operating Partnership by the OP general partner may not resign without the Unitholders with or without cause. Under the consent of those persons owning 51% of the AIMCO Operating Partnership Agreement, the units. Such consent is also necessary for general partner may, in its sole discretion, the approval of a new general partner. A prevent a transferee of an OP Unit from limited partner may not transfer his becoming a substituted limited partner interests without the written consent of the pursuant to the AIMCO Operating Partnership general partners which may be withheld at Agreement. The general partner may exercise the sole discretion of the general partners. this right of approval to deter, delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of
S-75 5285 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Limited partners owning 51% of the units may With the exception of certain circumstances amend your partnership's agreement of set forth in the AIMCO Operating Partnership limited partnership, except that any Agreement, whereby the general partner may, amendment which adversely affects a limited without the consent of the OP Unitholders, partner's interest in your partnership's amend the AIMCO Operating Partnership capital, profits or Distributable Cash (as Agreement, amendments to the AIMCO Operating defined in your partnership's agreement of Partnership Agreement require the consent of limited partnership) must be approved by the holders of a majority of the outstanding such limited partner. On its own motion or Common OP Units, excluding AIMCO and certain the written request of the limited partner other limited exclusions (a "Majority in owning at least 10% of the units, the Interest"). Amendments to the AIMCO general partner will submit the proposed Operating Partnership Agreement may be amendment to the limited partner together proposed by the general partner or by with its recommendation as to such proposal. holders of a Majority in Interest. Following The general partner may require a response such proposal, the general partner will within a specified time, but not less than submit any proposed amendment to the OP thirty days and failure to respond in such Unitholders. The general partner will seek time will constitute a vote which is the written consent of the OP Unitholders on consistent with the recommendation of the the proposed amendment or will call a limited partners. meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner but may receive fees for additional Operating Partnership. In addition, the services. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the liability of each gross negligence, no OP Unitholder has of the limited partners for its share of the personal liability for the AIMCO Operating losses or debts of your partnership is Partnership's debts and obligations, and limited to the total capital contribution of liability of the OP Unitholders for the such limited partner plus, to the extent AIMCO Operating Partnership's debts and that such limited partner has rightfully obligations is generally limited to the received the return of such capital amount of their investment in the AIMCO contribution, any sum, not in excess of such Operating Partnership.
S-76 5286 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP return, necessary to discharge liabilities However, the limitations on the liability of of your partnership to all creditors who limited partners for the obligations of a extended credit before such return; provided limited partnership have not been clearly that the liability with respect to established in some states. If it were rightfully returned capital contributions is determined that the AIMCO Operating Part- limited to one year from the date of such nership had been conducting business in any return. Notwithstanding the foregoing, the state without compliance with the applicable original limited partner only may be subject limited partnership statute, or that the to a mandatory assessment of an amount not right or the exercise of the right by the exceeding 50% of its total capital contri- holders of OP Units as a group to make bution as provided in your partnership's certain amendments to the AIMCO Operating agreement of limited partnership. Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties In general, your partnership's agreement of Unless otherwise provided for in the limited partnership and the AIMCO Operating relevant partnership agreement, Delaware law Partnership Agreement have limitations on generally requires a general partner of a the liability of the general partner but Delaware limited partnership to adhere to such limitations differ in terms and provide fiduciary duty standards under which it owes more protection for the general partner of its limited partners the highest duties of the AIMCO Operating Partnership. Under your good faith, fairness and loyalty and which partnership's agreement of limited generally prohibit such general partner from partnership, the general partner must act as taking any action or engaging in any a fiduciary with respect of the assets and transaction as to which it has a conflict of business of your partnership. The general interest. The AIMCO Operating Partnership partner must use its best efforts to do all Agreement expressly authorizes the general things and perform such duties as may be partner to enter into, on behalf of the reasonably necessary to the successful AIMCO Operating Partnership, a right of operation of your partnership. The general first opportunity arrangement and other partner must devote such of its time and conflict avoidance agreements with various that of its employees to your partnership affiliates of the AIMCO Operating business as may be reasonably necessary to Partnership and the general partner, on such carry on and conduct your partnership's terms as the general partner, in its sole business. However, except as specifically and absolute discretion, believes are provided in your partnership, the partners advisable. The AIMCO Operating Partnership may engage in whatever activities they Agreement expressly limits the liability of choose, whether the same be competitive with the general partner by providing that the your partnership or otherwise, including general partner, and its officers and without limitation, the acquisition, directors will not be liable or accountable ownership, financing, syndication, in damages to the AIMCO Operating development, improvement, leasing, Partnership, the limited partners or as- operation, management and brokerage of real signees for errors in judgment or mistakes property (including real property that may of fact or law or of any act or omission if be in the vicinity of and competitive with the general partner or such director or real property owned by your partnership), officer acted in good faith. See without having or incurring any obligation "Description of OP Units -- Fiduciary to disclose or to offer any interest in such Responsibilities" in the accompanying activities to any party to your Prospectus. partnership's agreement of limited partnership.
S-77 5287 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-78 5288 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's agree- Except as otherwise required by Under the AIMCO Operating ment of limited partnership, upon applicable law or in the AIMCO Partnership Agreement, the OP the vote of the limited partners Operating Partnership Agreement, Unitholders have voting rights owning a 51% of the outstanding the holders of the Preferred OP only with respect to certain lim- units, the limited partners may Units will have the same voting ited matters such as certain amend your partnership's agree- rights as holders of the Common OP amendments and termination of the ment of limited partnership, sub- Units. See "Description of OP AIMCO Operating Partnership ject to certain limitations; Units" in the accompanying Agreement and certain trans- dissolve and terminate your Prospectus. So long as any Pre- actions such as the institution of partnership; remove a general ferred OP Units are outstanding, bankruptcy proceedings, an as- partner for cause, approve the in addition to any other vote or signment for the benefit of credi- retirement of a general partner, consent of partners required by tors and certain transfers by the approve the admission of a new law or by the AIMCO Operating general partner of its interest in general partner; and approve or Partnership Agreement, the the AIMCO Operating Partnership or disapprove the sale of all or a affirmative vote or consent of the admission of a successor material portion of your holders of at least 50% of the general partner. partnership's property. outstanding Preferred OP Units will be necessary for effecting Under the AIMCO Operating A general partner may cause the any amendment of any of the provi- Partnership Agreement, the gen- dissolution of your partnership by sions of the Partnership Unit Des- eral partner has the power to ef- retiring. In such event, the ignation of the Preferred OP Units fect the acquisition, sale, limited partners holding 51% of that materially and adversely af- transfer, exchange or other the aggregate units may, within fects the rights or preferences of disposition of any assets of the ninety days of such occurrence, the holders of the Preferred OP AIMCO Operating Partnership vote to continue the business of Units. The creation or issu- (including, but not limited to, your partnership. If no general the exercise or partner remains
S-79 5289 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS in office, all of the limited ance of any class or series of grant of any conversion, option, partners may elect to reform your partnership units, including, privilege or subscription right or partnership and elect a successor without limitation, any any other right available in con- general partner whereupon your partnership units that may have nection with any assets at any partnership will be dissolved and rights senior or superior to the time held by the AIMCO Operating all of the assets and liabilities Preferred OP Units, shall not be Partnership) or the merger, of your partnership will be deemed to materially adversely consolidation, reorganization or contributed to a new partnership affect the rights or preferences other combination of the AIMCO and all parties to your of the holders of Preferred OP Operating Partnership with or into partnership's agreement of limited Units. With respect to the another entity, all without the partnership will become parties to exercise of the above described consent of the OP Unitholders. such new partnership. In general, voting rights, each Preferred OP you have greater voting rights in Units shall have one (1) vote per The general partner may cause the your partnership than you will Preferred OP Unit. dissolution of the AIMCO Oper- have as an OP Unitholder. OP ating Partnership by an "event of Unitholders cannot remove the withdrawal," as defined in the general partner of the AIMCO Delaware Limited Partnership Act Operating Partnership. (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the busi- ness of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions from at the rate of $0.50 per or such portion as the Distributable Cash (as Preferred OP Unit; provided, general defined in your partner- however, that
S-80 5290 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship's agreement of limited at any time and from time to partner may in its sole and partnership) will be made time on or after the fifth absolute discretion quarterly, on or about anniversary of the issue determine, of Available Cash January 15, April 15, July date of the Preferred OP (as defined in the AIMCO 15 and October 15 for each Units, the AIMCO Operating Operating Partnership fiscal year, or for such Partnership may adjust the Agreement) generated by the shorter period as may be annual distribution rate on AIMCO Operating Partnership applicable. The the Preferred OP Units to during such quarter to the distributions payable to the the lower of (i) 2.00% plus general partner, the special partners are not fixed in the annual interest rate limited partner and the amount and depend upon the then applicable to U.S. holders of Common OP Units operating results and net Treasury notes with a on the record date es- sales or refinancing pro- maturity of five years, and tablished by the general ceeds available from the (ii) the annual dividend partner with respect to such disposition of your rate on the most recently quarter, in accordance with partnership's assets. issued AIMCO non-convertible their respective interests preferred stock which ranks in the AIMCO Operating on a parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by the AIMCO
S-81 5291 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Operating Partnership with income or excise tax respect to any Junior Units liability of AIMCO. See (as defined below), nor "Description of OP shall any Junior Units be Units -- Distributions" in redeemed, purchased or the accompanying Prospectus. otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such person will and the Preferred OP Units Operating Partnership become a substitute limited are not listed on any Agreement restricts the partner if: (1) a written securities exchange. The transferability of the OP assignment has been duly Preferred OP Units are Units. Until the expiration executed and acknowledged by subject to restrictions on of one year from the date on the assignor and assignee transfer as set forth in the which an OP Unitholder and delivered to the general AIMCO Operating Partnership acquired OP Units, subject partners, (2) the approval Agreement. to certain exceptions, such of the general partners OP Unitholder may not which may be withheld in the Pursuant to the AIMCO transfer all or any por- sole discretion and which Operating Partnership tion of its OP Units to any will be withheld if the Agreement, until the transferee without the general partners reasonably expiration of one year from consent of the general believe that the transfer the date on which a holder partner, which consent may violates applicable of Preferred OP Units be withheld in its sole and securities law or result in acquired Preferred OP Units, absolute discretion. After adverse tax consequences, subject to certain the expiration of one year, including the termination of exceptions, such holder of such OP Unitholder has the your partnership for tax Preferred OP Units may not right to transfer all or any purposes, (3) the assignee transfer all or any portion portion of its OP Units to has agreed to be bound by of its Preferred OP Units to any person, subject to the all of the terms of your any transferee without the satisfaction of certain con- partnership's agreement of consent of the general ditions specified in the limited partnership and partner, which consent may AIMCO Operating Partnership absolute discretion of the be withheld in its sole and Agreement, including the general partner has been absolute discretion. After general partner's right of granted, (4) the assignee the expiration of one year, first refusal. See represents he is at least 18 such holders of Preferred OP "Description of OP Units -- years of age, is a citizen Units has the right to Transfers and Withdrawals" and resident of the U.S., transfer all or any portion in the accompanying has sufficient financial of its Preferred OP Units to Prospectus. resources to maintain the any person, subject to the interest acquired and that satisfaction of certain After the first anniversary he is not acquiring the conditions specified in the of becoming a holder of interest with a view to AIMCO Operating Partner- Common OP Units, an OP resell the interest and (5) ship Agreement, including Unitholder has the right, the assignor and assignee the general partner's right subject to the terms and have complied with such of first refusal. conditions of the AIMCO other conditions as set Operating Partnership forth in your partnership's After a one-year holding Agreement, to require the agreement of limited period, a holder may redeem AIMCO Operating Partnership partnership. Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held There are no redemption therefor, at the AIMCO Oper- by such party in exchange rights associated with your ating Partnership's option, units.
S-82 5292 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS (i) subject to the terms of for a cash amount based on any Senior Units (as defined the value of shares of Class below), cash in an amount A Common Stock. See equal to the Liquidation "Description of OP Preference of the Preferred Units -- Redemption Rights" OP Units tendered for in the accompanying redemption, (ii) a number of Prospectus. Upon receipt of shares of Class A Common a notice of redemption, the Stock of AIMCO that is equal AIMCO Operating Partnership in Value to the Liquidation may, in its sole and Preference of the Preferred absolute discretion but OP Units tendered for subject to the restrictions redemption, or (iii) for on the ownership of Class A Preferred OP Units redeemed Common Stock imposed under after a two-year holding AIMCO's charter and the period, a number of shares transfer restrictions and of Class I Preferred Stock other limitations thereof, of AIMCO that pay an elect to cause AIMCO to aggregate amount of acquire some or all of the dividends equivalent to the tendered Common OP Units in distributions on the exchange for Class A Common Preferred OP Units tendered Stock, based on an exchange for redemption; provided ratio of one share of Class that such shares are part of A Common Stock for each Com- a class or series of mon OP Unit, subject to preferred stock that is then adjustment as provided in listed on the NYSE or an- the AIMCO Operating other national securities Partnership Agreement. exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 5293 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 5294 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 5295 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 5296 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 5297 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 5298 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 5299 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 5300 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 5301 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 5302 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $25,434 in 1996, $26,608 in 1997 and $18,316 in 1998. The property manager received management fees of $37,726 in 1996, $39,386 in 1997 and $40,991 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 5303 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $217,781 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, of the election of the company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 5304 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Thurber Manor Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-95 5305 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Balance Sheets as of December 31, 1997 and 1996............. F-7 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-8 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-14 Balance Sheets as of December 31, 1996 and 1995............. F-15 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-16 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-17 Notes to Financial Statements............................... F-18
F-1 5306 THURBER MANOR ASSOCIATES, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 118,348 Receivables and deposits.................................... 76,747 Restricted escrows.......................................... 126,686 Other assets................................................ 53,962 Investment property Land...................................................... $ 176,415 Building and related personal property.................... 3,057,461 ----------- 3,233,876 Less: Accumulated depreciation............................ (2,169,552) 1,064,324 ----------- ---------- Total assets...................................... $1,440,067 ========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 7,227 Other accrued liabilities................................... 14,732 Property taxes payable...................................... 43,832 Tenant security deposits.................................... 22,334 Notes payable............................................... 2,299,758 Partners' deficit................................. (947,816) ---------- Total liabilities and partners' deficit........... $1,440,067 ==========
See Accompanying Notes to Financial Statements. F-2 5307 THURBER MANOR ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $580,115 $550,452 Other income.............................................. 37,229 36,858 -------- -------- Total revenues.................................... 617,344 587,310 Expenses: Operating expenses........................................ 265,189 242,958 General and administrative expenses....................... 22,018 18,519 Depreciation expense...................................... 65,210 65,210 Interest expense.......................................... 141,362 145,515 Property tax expense...................................... 43,832 44,038 -------- -------- Total expenses.................................... 537,611 516,240 -------- -------- Net income........................................ $ 79,733 $ 71,070 ======== ========
See Accompanying Notes to Financial Statements. F-3 5308 THURBER MANOR ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Operating activities: Net income................................................ $ 79,733 $ 71,070 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 67,672 65,210 Changes in accounts: Receivables and deposits and other assets.............. (8,001) (69) Accounts payable and accrued expenses.................. (20,528) (49,821) -------- -------- Net cash provided by (used in) operating activities...................................... 118,876 86,390 -------- -------- Investing activities: Property improvements and replacements.................... (51,522) (71,948) Net (increase)/decrease in restricted escrows............. (4,229) (3,754) -------- -------- Net cash provided by (used in) investing activities....... (55,751) (75,702) -------- -------- Financing activities: Payments on mortgage...................................... (56,912) (51,218) -------- -------- Net cash provided by (used in) financing activities....... (56,912) (51,273) -------- -------- Net increase (decrease) in cash and cash equivalents...... 6,213 (40,530) Cash and cash equivalents at beginning of period.......... 112,135 150,747 -------- -------- Cash and cash equivalents at end of period................ $118,348 $110,217 ======== ========
See Accompanying Notes to Financial Statements. F-4 5309 THURBER MANOR ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Thurber Manor Associates, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 5310 INDEPENDENT AUDITORS' REPORT General Partners Thurber Manor Associates, Limited: We have audited the accompanying balance sheets of Thurber Manor Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thurber Manor Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 18, 1998 F-6 5311 THURBER MANOR ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 112,135 $ 150,747 Receivables and deposits.................................... 66,274 49,095 Restricted escrows (Note B)................................. 122,457 117,424 Other assets................................................ 58,896 65,395 Investment properties (Note C): Land...................................................... 176,415 176,415 Buildings and related personal property................... 3,005,939 2,925,216 ----------- ----------- 3,182,354 3,101,631 Less accumulated depreciation............................. (2,104,342) (2,017,395) ----------- ----------- 1,078,012 1,084,236 ----------- ----------- $ 1,437,774 $ 1,466,897 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 10,639 $ 53,686 Tenant security deposit liabilities....................... 23,293 24,462 Accrued taxes............................................. 55,659 55,705 Other liabilities......................................... 19,062 18,834 Mortgage notes payable (Note C)........................... 2,356,670 2,408,823 Partners' Deficit........................................... (1,027,549) (1,094,613) ----------- ----------- $ 1,437,774 $ 1,466,897 =========== ===========
See accompanying notes to financial statements. F-7 5312 THURBER MANOR ASSOCIATES, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, --------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 747,177 $ 705,499 Other income.............................................. 47,932 56,360 ----------- ----------- Total revenues.................................... 795,109 761,859 ----------- ----------- Expenses: Operating (Note D)........................................ 335,435 331,812 General and administrative................................ 29,848 29,459 Depreciation.............................................. 86,947 79,502 Interest.................................................. 219,984 224,343 Property taxes............................................ 55,831 56,287 ----------- ----------- Total expenses.................................... 728,045 721,403 ----------- ----------- Net income.................................................. 67,064 40,456 Distributions to partners................................... -- (15,000) Partners' deficit at beginning of year...................... (1,094,613) (1,120,069) ----------- ----------- Partners' deficit at end of year............................ $(1,027,549) $(1,094,613) =========== ===========
See accompanying notes to financial statements. F-8 5313 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ---------- ----------- Cash flows from operating activities: Net income................................................ $ 67,064 $ 40,456 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 86,947 79,502 Amortization of discounts and loan costs............... 29,924 29,101 Change in accounts: Receivables and deposits............................. (17,179) 6,951 Other assets......................................... (4,556) -- Accounts payable..................................... (43,047) 48,355 Tenant security deposit liabilities.................. (1,169) 2,930 Accrued taxes........................................ (46) 8,685 Other liabilities.................................... 228 (6,128) -------- --------- Net cash provided by operating activities......... 118,166 209,852 -------- --------- Cash flows from investing activities: Property improvements and replacements.................... (80,723) (119,149) Net (deposits to) receipts from restricted escrows........ (5,033) 11,326 -------- --------- Net cash used in investing activities............. (85,756) (107,823) -------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (71,022) (65,841) Distributions to partners................................. -- (15,000) -------- --------- Net cash used in financing activities............. (71,022) (80,841) -------- --------- Net increase (decrease) in cash and cash equivalents........ (38,612) 21,188 Cash and cash equivalents at beginning of year.............. 150,747 129,559 -------- --------- Cash and cash equivalents at end of year.................... $112,135 $ 150,747 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $190,060 $ 195,242 ======== =========
See accompanying notes to financial statements. F-9 5314 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Thurber Manor Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated August 13, 1984. The Partnership owns and operates a 115 unit apartment complex, Thurber Manor Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $54,339 and $65,395, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-10 5315 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. .... $122,457 $117,424 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $21,230, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,378,949 $2,449,971 Second mortgage note payable in interest only monthly installments of $527, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,190 83,190 ---------- ---------- Principal balance at year end............................... 2,462,139 2,533,161 Less unamortized discount................................... (105,469) (124,338) ---------- ---------- $2,356,670 $2,408,823 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 76,612 1999..................................................... 82,642 2000..................................................... 89,146 2001..................................................... 96,162 2002..................................................... 2,117,577 ---------- $2,462,139 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-11 5316 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee................................... $39,386 $37,726 Partnership administration fee................... $ 7,194 $ 7,545 Reimbursement for services of affiliates......... $15,573 $14,295 Construction oversight costs..................... $ 3,841 $ 3,594
F-12 5317 THURBER MANOR ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-13 5318 INDEPENDENT AUDITORS' REPORT General Partners Thurber Manor Associates, Limited: We have audited the accompanying balance sheets of Thurber Manor Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thurber Manor Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 25, 1997 F-14 5319 THURBER MANOR ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 150,747 $ 129,559 Restricted-tenant security deposits....................... 24,462 21,532 Accounts receivable......................................... -- 1,494 Escrow for taxes............................................ 24,633 33,020 Restricted escrows (Note B)................................. 117,424 128,750 Other assets................................................ 65,395 76,450 Investment properties (Notes C): Land...................................................... 176,415 176,415 Building and related personal property.................... 2,925,216 2,806,067 ----------- ----------- 3,101,631 2,982,482 Less accumulated depreciation............................. (2,017,395) (1,937,893) ----------- ----------- 1,084,236 1,044,589 ----------- ----------- $ 1,466,897 $ 1,435,394 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable............................................ $ 53,686 $ 5,331 Tenant security deposits.................................... 24,462 21,532 Accrued taxes............................................... 55,705 47,020 Other liabilities........................................... 18,834 24,962 Mortgage notes payable (Note C)............................. 2,408,823 2,456,618 Partners' deficit........................................... (1,094,613) (1,120,069) ----------- ----------- $ 1,466,897 $ 1,435,394 =========== ===========
See accompanying notes to financial statements. F-15 5320 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 705,499 $ 687,861 Other income.............................................. 56,360 40,129 ----------- ----------- Total revenues.................................... 761,859 727,990 ----------- ----------- Expenses: Operating (Note D)........................................ 229,889 220,076 General and administrative (Note D)....................... 29,459 33,719 Maintenance............................................... 101,923 70,956 Depreciation.............................................. 79,502 75,185 Interest.................................................. 224,343 228,338 Property taxes............................................ 56,287 47,681 ----------- ----------- Total expenses.................................... 721,403 675,955 ----------- ----------- Net income.................................................. 40,456 52,035 Distributions to partners................................... (15,000) (20,000) Partners' deficit at beginning of year...................... (1,120,069) (1,152,104) ----------- ----------- Partners' deficit at end of year............................ $(1,094,613) $(1,120,069) =========== ===========
See accompanying notes to financial statements. F-16 5321 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 40,456 $ 52,035 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 79,502 75,185 Amortization of discounts and loan costs............... 29,101 28,291 Change in accounts: Restricted cash...................................... (2,930) (2,896) Accounts receivable.................................. 1,494 69 Escrow for taxes..................................... 8,387 (2,345) Accounts payable..................................... 48,355 (660) Tenant security deposit liabilities.................. 2,930 2,094 Accrued taxes........................................ 8,685 604 Other liabilities.................................... (6,128) 954 --------- --------- Net cash provided by operating activities......... 209,852 153,331 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (119,149) (136,749) Deposits to restricted escrows............................ (5,242) (5,361) Receipts from restricted escrows.......................... 16,568 39,780 --------- --------- Net cash used in investing activities............. (107,823) (102,330) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (65,841) (61,036) Distributions to partners................................. (15,000) (20,000) --------- --------- Net cash used in financing activities............. (80,841) (81,036) --------- --------- Net increase (decrease) in cash and cash equivalents........ 21,188 (30,035) Cash and cash equivalents at beginning of year.............. 129,559 159,594 --------- --------- Cash and cash equivalents at end of year.................... $ 150,747 $ 129,559 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 195,242 $ 200,047 ========= =========
See accompanying notes to financial statements. F-17 5322 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Thurber Manor Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated August 13, 1984. The Partnership owns and operates a 115 unit apartment complex, Thurber Manor Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-18 5323 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1996. .................................................... $ -- $ 10,458 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 117,424 118,292 -------- -------- $117,424 $128,750 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $21,230, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,449,971 $2,515,812 Second mortgage note payable in interest only monthly installments of $527, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,190 83,190 ---------- ---------- Principal balance at year end............................... 2,533,161 2,599,002 Less unamortized discount................................... (124,338) (142,384) ---------- ---------- $2,408,823 $2,456,618 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 71,022 1998..................................................... 76,612 1999..................................................... 82,642 2000..................................................... 89,146 2001..................................................... 96,162 Thereafter............................................... 2,117,577 ---------- $2,533,161 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-19 5324 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee................................... $37,726 $36,107 Partnership administration fee................... $ 7,545 $ 7,223 Reimbursement for services of affiliates......... $14,295 $19,218 Construction oversight costs..................... $ 3,594 $ 3,724
F-20 5325 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million . AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 5326 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for P-2 5327 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country P-3 5328 Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 5329 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 5330 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
P-6 5331 This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The P-7 5332 combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 5333 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 5334 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 5335 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; P-11 5336 (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of P-12 5337 $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. P-13 5338 (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro P-14 5339 forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 5340 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 5341 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 5342 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 5343 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 5344 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 5345 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 5346 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 5347 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 5348 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 5349 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 5350 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 5351 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 5352
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 5353 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 5354
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 5355 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5356 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5357 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5358
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5359 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5360 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5361 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5362
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5363 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5364 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5365 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-41 5366 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-42 5367 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-43 5368 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-44 5369 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-45 5370 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-46 5371 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-47 5372 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5373 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Thurber Manor Associates, L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Thurber Manor Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $46,460 in cash, or 1,201.00 Common OP Units of the Purchaser, or 1,858.50 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5374 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, Special Limited Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP A-2 5375 Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5376 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 5377
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's
B-2 5378
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 5379
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries.
B-4 5380
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5381 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5382 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Villa Nova, Limited Partnership in exchange for your choice of: 1,043 of our 8.0% Class Two Partnership Preferred Units; 674.00 of our Partnership Common Units; or $26,070 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $26,070 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5383 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Villa Nova, Limited Partnership........................ S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25
PAGE ----- Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 Balloon Payments........................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-46 General...................................... S-46 Your Partnership and its Property............ S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49
i 5384
PAGE ----- Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59 Extension of Tender Period; Termination; Amendment.................................. S-59 Proration.................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70
PAGE ----- Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-79 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85 Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-88 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5385 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"). AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties, Inc. & Residual Equities , and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,427,000, less approximately $130,000 of deferred maintenance and investment. It is possible, that the sale of the property could result in you receiving more per unit than in our offer. S-1 5386 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5387 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 5388 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 5389 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $1,963,434 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. S-5 5390 We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments of $1,963,434. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's [property]. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-6 5391 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,086.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,693.13 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-7 5392 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 5393 VALUATION OF UNITS We determined the offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 360,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership property..................... $ 3,427,000 Plus: Cash and cash equivalents............................. 46,473 Plus: Other partnership assets, net of security deposits.... 170,819 Less: Mortgage debt, including accrued interest............. (2,489,191) Less: Accounts payable and accrued expenses................. (5,848) Less: Other liabilities..................................... (20,929) ----------- Partnership valuation before taxes and certain costs........ 1,128,324 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (130,200) Less: Closing costs......................................... (85,675) ----------- Estimates net valuation of your partnership................. 912,449 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 912,449 Total number of units............................. 35.0 ----------- Estimated valuation per unit................................ 26,070 =========== Cash consideration per unit................................. $ 26,070 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $26,070 by the $25 liquidation preference of each Preferred OP Unit to get 1,043 Preferred OP Units per unit. S-9 5394 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $26,070 by a price of $38.69 to get 674.00 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 26,070 Partnership Preferred Units................................. $ 1,043 Partnership Common Units.................................... $ 677.25 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 26,070 Estimated going concern value............................. $ 21,429 Alternative going concern value(1)........................ $ 23,739 Net book value (deficit).................................. $(40,715)
- --------------- (1) Assumes sale of the property when a balloon payment is due instead of refinancing the mortgage. S-10 5395 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Villa Nova, Limited Partnership is a Tennessee limited partnership which was formed on April 20, 1984 for the purpose of owning and operating a single apartment property located in Indianapolis, Indiana, known as "Villa Nova Apartments." Your partnership's property consists of 126 units and was built in 1972. Your partnership has no employees. As of September 30, 1998, there were 35 units of limited partnership interest issued and outstanding, which were held of record by 45 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership raised net proceeds of approximately $2,012,500 through a private offering in 1984. Between January 1, 1993 and December 31, 1998 your partnership paid no cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,319,971, payable to Marine Midland, Bank of America and FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of 83,835, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 5396 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,043 of our Class Two Partnership Preferred Units; - 674.00 of our Partnership Common Units; or - $26,070 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 35 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,043 Preferred OP Units, 674.00 Common OP Units, or $26,070 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. S-12 5397 Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. S-13 5398 Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $26,070 in cash, 1,043 Preferred OP Units or 674.00 Common OP Units. Both your units and the OP Units S-14 5399 are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $26,070. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $17,703.98 for the fiscal year ended December 31, 1998. The property manager received management fees of $42,843.00 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $228,113 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5400 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5401
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5402 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5403
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5404 SUMMARY FINANCIAL INFORMATION OF VILLA NOVA, LIMITED PARTNERSHIP The summary financial information of Villa Nova, Limited Partnership, for the nine months ended September 30, 1998 and 1999 is unaudited. The summary financial information for Villa Nova, Limited Partnership for the years ended December 31, 1997 and 1996, is based on unaudited financial statements. The summary financial information for the years ended December 31, 1995, 1994, and 1993 is based on unaudited information. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Conditions and Results of Operations of Your Partnership" included. See "Index to Financial Statements". VILLA NOVA, LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- --------- OPERATING DATA: Total Revenues.................... $ 628,279 $ 610,245 $ 834,683 $ 775,968 $ 807,989 $ 747,111 $ 689,533 Net Income/(Loss)................. (150,510) (21,277) (39,434) (70,903) (13,848) (48,654) (203,454) Net Income per limited partnership unit............................ (4,257) (602) (1,115) (2,006) (392) (1,376) (5,574) Distributions per limited partnership unit................ -- -- -- -- 36 -- -- Distributions per limited partnership unit (which represent a return of capital)........................
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 43,696 $ 38,099 $ 46,475 $ 35,399 $ 58,330 $ 28,547 $ 82,091 Real Estate, Net of Accumulated Depreciation...................... 1,610,114 1,709,002 1,671,823 1,773,933 1,873,515 1,971,619 2,087,265 Total Assets........................ 1,886,295 1,994,261 1,936,856 2,021,718 2,151,471 2,217,442 2,367,751 Notes Payable....................... 2,332,232 2,388,964 2,374,717 2,427,764 2,475,420 2,319,551 2,559,993 General Partners' Capital/(Deficit)... (6,233) (4,547) (4,728) (4,334) (3,625) (3,474) (2,987) Limited Partners' Capital/(Deficit)... (617,105) (450,124) (468,100) (439,060) (358,866) (343,890) (295,723) Partners' Capital/Deficit............. (623,338) (454,671) (472,828) (433,394) (362,491) (347,364) (298,710) Total Distributions................... -- -- -- -- 1,279 -- -- Book value per limited partnership unit................................ (17,810) (12,991) (13,509) 12,383 (10,357) (9,925) (8,535) Net increase (decrease) in cash and cash equivalents.................... (2,779) 2,700 11,076 (22,931) 29,783 (53,544) 82,091 Net cash provided by operating activities.......................... 95,261 90,936 115,648 75,419 119,058 8,028 (169,462) Ratio of earnings to fixed charges.... 0.07/1 0.87/1 0.82/1 0.68/1 0.94/1 0.79/1 0.13/1 0.07 0.87 0.82 0.68 0.94 0.79 0.15
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO VILLA NOVA, OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $1,685.00 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $2,086.00 $ 0
S-20 5405 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 5406 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth 3,427,000 less approximately 130,200 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 5407 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 5408 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Villa Nova, Limited Partnership have been prepared from the books and records of the Partnership in accordance with generally accepted accounting principles. An audit of the Partnership's financial statements could not be completed because the General Partner does not have sufficient audit evidence to support the historical capitalized costs of the Partnership's properties, including the initial construction, which occurred in 1984. Nevertheless, the General Partner believes that such financial statements appropriately reflect the financial condition and results of operations of the Partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-24 5409 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 5410 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $1,963,434 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 5411 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.5% interest, consisting of a 0% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 5412 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 5413 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's [property] would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November 2002 and require balloon payments totaling $1,963,434. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. S-29 5414 A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a vote of the limited partners owning a majority of the outstanding units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 5415 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,086 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,685.00 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 5416 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." S-32 5417 VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value..... $359,801 10.50% $3,427,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $834,147, less total expenses of $436,546 and recurring replacement costs of $37,800. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $912,449. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. S-33 5418 - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 360,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 3,427,000 Plus: Cash and cash equivalents............................. 46,473 Plus: Other partnership assets, net of security deposits.... 170,819 Less: Mortgage debt, including accrued interest............. (2,489,191) ----------- Less: Accounts payable and accrued expenses................. (5,848) Less: Other liabilities..................................... (20,929) ----------- Partnership valuation before taxes and certain costs........ 1,128,324 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (130,200) Less: Closing costs......................................... (85,675) ----------- Estimates net valuation of your partnership................. 912,449 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 912,449 Total number of units............................. 35.0 ----------- Estimated valuation per unit................................ 26,070 =========== Cash consideration per unit................................. 26,070 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $26,070 by the $25 liquidation preference of each Preferred OP Unit to get 1,043.00 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $26,070 by a price of $38.69 to get $674.00 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $912,449 or .16% is the net valuation of your partnership. S-34 5419 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from a loss of $21,277 for the nine months ended September 30, 1997 to a loss of $150,510 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 5420 11. The estimated unit value of $26,070, based on a total estimated value of your partnership's property of $3,427,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $2,086.00 per year on the number of Preferred OP Units, or distributions of $1,685,000 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no Distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 5421 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 5422 Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 1, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT ---------- Cash offer price............................................ $26,070.00 Partnership preferred units................................. 1,043.00 (1 Partnership common units.................................... 677.25 (1 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 26,070 Estimated going concern value............................. $ 21,429 Net book value............................................ $ (40,715) Alternative going concern value........................... $ 23,739 (2
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The S-38 5423 liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $21,429 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Net Book Value Net book deficit per unit is $40,715 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $22,565 per unit, going concern value of $16,746 per unit and liquidation value of $20,108 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account S-39 5424 (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(3,505), $(9,324) and $(5,962). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and S-40 5425 analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; [(ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
VILLA NOVA APARTMENTS ---------- Total Revenues.............................................. $ 857,523 Operating Expenses.......................................... (467,692) Replacement Reserves -- Net................................. (60,618) Debt Service................................................ (263,161) Capital Expenditures........................................ (43,200) --------- Net Cash Flow..................................... $ 22,852 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget S-41 5426 are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $130,200. Stanger observed that your S-42 5427 partnership liquidation value of $912,449 was divided by the total units outstanding of 35 to provide the liquidation value per unit of $26,070. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $360,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $40,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 35 to achieve management's estimate of going concern value of $21,429 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $26,070 per unit is equal to management's estimate of liquidation value, and reflects a 22% premium to management's estimate of going concern value of $21,429. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year after the closing of this transaction, preferred stock of AIMCO with a dividend equal to the dividend of the Preferred OP Units. Stanger observed that ten day average price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's S-43 5428 estimated internal rate of return derived from the discounted cash flow analysis, (12.8% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $22,565, $16,746, and $20,108 representing (discounts) to the offer price of (13.4)%, (35.7)% and (22.8)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or S-44 5429 allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-45 5430 YOUR PARTNERSHIP GENERAL Villa Nova, Limited Partnership, is a Tennessee limited partnership which completed a private offering in 1984. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 45 limited partners of your partnership and a total of 35 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on April 20, 1984 for the purpose of owning an apartment property located in Indianapolis, Indiana, known as "Villa Nova Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1972 and consists of 126 apartment units. Your partnership's property had an average occupancy rate of approximately 96.81% in 1998, 96.83% in 1997 and 96.83% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Budgeted renovations or improvements for 1999 total $130,200 and are intended to be paid for out of cash flow or borrowings. Renovation items include stairwells, balconies, drives and parking lot, exterior lighting, and landscape and irrigation. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $520 $477 $485 $455 $429
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $80,534 of $876,260 of assessed valuation with a current yearly tax rate of 9.19%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 9.65% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-46 5431 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 97% and $512, respectively, at December 31, 1998, compared to 97% and $520, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because the property is located in a strong economic market northeast of Indianapolis. In addition, the general partner noted that it expects to spend approximately $130,200 for capital improvements at the property in 1999 to repair and improve the property's stairwells, balconies, parking lot, exterior lighting. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,319,971, payable to Marine Midland Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $83,835, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. S-47 5432 COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,012,500 of limited partnership units in 1984. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 1, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership and its affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliate are entitled to indemnification by your partnership for any and all acts performed by them in good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-48 5433 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $57,500. From 1993 through 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows: BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.50% interest in your partnership, including no units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 5434 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $32,957 1995........................................................ 36,505 1996........................................................ 37,503 1997........................................................ 39,810 1998........................................................ 17,704
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- Not 1994........................................................ Available 1995........................................................ $40,399 1996........................................................ 41,083 1997........................................................ 41,398 1998........................................................ 42,843
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 5435 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 43,696 $ 38,099 $ 46,475 $ 35,399 $ 58,330 $ 28,547 $ 82,091 Land & Building............... 3,547,641 3,489,997 3,492,086 3,440,061 3,389,867 3,346,002 3,324,872 Accumulated Depreciation...... (1,937,527) (1,780,995) (1,820,263) (1,666,120) (1,516,354) (1,374,383) (1,237,607) Other Assets.................. 232,485 247,160 218,550 212,386 219,628 217,276 198,395 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 1,886,295 $ 1,994,261 $ 1,936,856 $ 2,021,718 $ 2,151,471 $ 2,217,442 $ 2,367,751 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 2,332,232 $ 2,388,964 $ 2,374,717 $ 2,427,264 $ 2,475,420 $ 2,319,551 $ 2,559,993 Other Liabilities............. 177,401 59,968 34,967 27,848 38,542 45,255 106,468 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 2,509,633 $ 2,448,932 $ 2,409,684 $ 2,455,112 $ 2,513,962 $ 2,564,806 $ 2,666,461 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit.............. $ (623,338) $ (454,671) $ (472,828) $ (433,394) $ (362,491) $ (347,364) $ (298,710) =========== =========== =========== =========== =========== =========== ===========
VILLA NOVA ---------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Rental Revenue................. $ 581,894 $ 573,009 $ 786,461 $ 721,219 $ 733,902 $ 688,036 $ 648,411 Other Income................... 46,385 37,236 48,222 54,749 74,087 59,075 41,122 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.......... $ 628,279 $ 610,245 $ 834,683 $ 775,968 $ 807,989 $ 747,111 $ 689,533 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. $ 410,921 $ 263,652 $ 386,621 $ 359,373 $ 338,921 $ 314,802 $ 404,530 General & Administrative....... 29,873 25,893 41,437 41,886 40,091 34,808 54,144 Depreciation................... 117,264 114,867 154,135 149,774 141,971 136,776 125,899 Interest Expense............... 161,516 165,700 220,250 224,549 228,302 252,365 235,166 Property Taxes................. 59,215 59,410 71,674 71,289 72,552 77,014 73,228 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses......... $ 778,789 $ 631,522 $ 874,117 $ 846,871 $ 821,837 $ 795,765 $ 892,967 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income before extraordinary items........................ $ (150,510) $ (21,277) $ (39,434) $ (70,903) $ (13,848) $ (48,654) $ (203,434) Extraordinary Items............ -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (loss).............. $ (150,510) $ (21,277) $ (39,434) $ (70,903) $ (13,848) $ (48,654) $ (203,434) ========== ========== ========== ========== ========== ========== ========== Net Income per limited partnership unit............. $ (4,257) $ (602) $ (1,115) $ (2,006) $ (392) $ (1,376) $ (5,754) ========== ========== ========== ========== ========== ========== ========== Distributions per limited partnership unit............. $ -- $ -- $ -- $ -- $ 36 $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
S-51 5436 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP VILLA NOVA Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized net loss of $150,510 for the nine months ended September 30, 1998, compared to net loss of $21,277 for the nine months ended September 30, 1997. The decrease in net income of $129,233 or 607.38% was primarily the result of an increase in operating expenses. This is discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $628,279 for the nine months ended September 30, 1998, compared to $610,245 for the nine months ended September 30, 1997, an increase of $18,034, or 2.96%. The increase is primarily due to an increase in the rental rates of approximately 2%. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $410,921 for the nine months ended September 30, 1998, compared to $265,652 for the nine months ended September 30, 1997, an increase of $145,269 or 54.68% due to exterior painting expenses incurred during the first six months of 1998. Management expenses totaled $32,169 for the nine months ended September 30, 1998, compared to $30,398 for the nine months ended September 30, 1997, an increase of $1,771 or 5.83% which can be attributed to the increase in revenues as management fees are calculated as a percentage of revenues. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $29,873 for the nine months ended September 30, 1998 compared to $25,893 for the nine months ended September 30, 1997, an increase of $3,980 or 15.37%. This is primarily due to increased charges related to collection services fees and other various administrative expenses. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $161,516 for the nine months ended September 30, 1998, compared to $165,700 for the nine months ended September 30, 1997, a decrease of $4,184, or 2.53%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net loss of $39,434 for the year ended December 31, 1997, compared to a net loss of $70,903 for the year ended December 31, 1996. The increase in net income of $31,469 or 44.38% was primarily the result of an increase in rental revenue. S-52 5437 REVENUES Rental and other property revenues from the partnership's property totaled $834,683 for the year ended December 31, 1997, compared to $775,968 for the year ended December 31, 1996, an increase of $58,715, or 7.57%. This increase can be attributed to an increase in occupancy levels coupled with an increase in rental rates. Occupancy rates increased 1% to 96% in 1997, and rental rates increased 33% over the prior year. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $386,621 for the year ended December 31, 1997, compared to $359,373 for the year ended December 31, 1996, an increase of $27,248 or 7.58%. The increase in expenses can be attributed to an increase in advertising of approximately $5,000, an increase in salaries maintenance of approximately $15,000, and overall increases in other miscellaneous property expenses. Management expenses totaled $41,398 for the year ended December 31, 1997, compared to $41,083 for the year ended December 31, 1996, an increase of $315, or 0.77%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $41,437 for the year December 31, 1997 compared to $41,886 for the year ended December 31, 1996, a decrease of $449 or 1.07%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $220,250 for the year ended December 31, 1997, compared to $224,549 for the year ended December 31, 1996, a decrease of $4,299, or 1.91%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership reorganized a net loss of $70, 903 for the year ended December 31, 1996, compared to a net loss of $13,848 for the year ended December 31, 1995. The decrease in net income of $57,055, or 412% was primarily the result of a decrease in revenues coupled with an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $775,968 the year ended December 31, 1996, compared to $807,989 for the year ended December 31, 1995, a decrease of $32,021 or 3.96%. Rental rates increased approximately 9% over the prior year, however, these were offset by a decrease in occupancy rates. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $359,373 for the year ended December 31, 1996, compared to $338,921 for the year ended December 31, 1995, an increase of $20,452 or 6.03%. The increase is primarily due to increase maintenance costs. Management expenses totaled $41,083 for the year ended December 31, 1996, compared to $40,399 for the year ended December 31, 1995, an increase of $684, or 1.69%. S-53 5438 GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $41, 886 for the year ended December 31, 1996 compared to $40,091 for the year ended December 31, 1995, an increase of $1,795 or 4.48%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $224,549 for the year ended December 31, 1996, compared to $228,302 for the year ended December 31, 1995, a decrease of $3,753, or 1.64%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998 your Partnership had $43,696 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $106,284, was $2,332,232. The mortgages require monthly payments of approximately $21,925 until November 2002. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 5439 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 35 units of your partnership (up to 8.75 units) for consideration per unit of (i) 1,043 Preferred OP Units, (ii) 674.00 Common OP Units, or (iii) $26,070 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-55 5440 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 5441 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 5442 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 5443 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 5444 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 5445 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 5446 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 5447 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 5448 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 5449 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 5450 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 5451 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 5452 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 5453 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 5454 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 5455 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 5456 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Tennessee law for the as a Delaware limited partnership. The AIMCO purpose of owning and managing Villa Nova Operating Partnership owns interests (either Apartments. directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's property. Partnership is to conduct any business that Subject to restrictions contained in your may be lawfully conducted by a limited partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all act necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 5457 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 35 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and subsidiaries or other persons in which it engage in other transactions with has an equity investment,
S-73 5458 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP persons who are partners or who are and such persons may borrow funds from the affiliates of partners. Any and all AIMCO Operating Partnership, on terms and compensation paid to such persons in conditions established in the sole and connection with services performed for your absolute discretion of the general partner. partnership must be commensurate with that To the extent consistent with the business which would be paid to an independent person purpose of the AIMCO Operating Partnership for similar services and all agreements must and the permitted activities of the general be in writing. Your partnership may not make partner, the AIMCO Operating Partnership may loans to any partners but the general transfer assets to joint ventures, limited partner may make loans to your partnership; liability companies, partnerships, provided that the interest and fees received corporations, business trusts or other by the general partner in connection with business entities in which it is or thereby such loans are not in excess of the amounts becomes a participant upon such terms and which would be charged by an unrelated bank subject to such conditions consistent with and the general partner does not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each limited partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partner. Your partnership furnishes such in- business, residence or mailing address of formation to any limited partner requesting the general partner and each other OP the same in writing, upon payment of all Unitholder. costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your All management powers over the business and partnership business, activities and affairs of the AIMCO Operating Partnership operations is vested solely in the general are vested in AIMCO-GP, Inc., which is the partner of your partnership. The general general partner. No OP Unitholder has any partner has full, exclusive and complete right to participate in or exercise control authority and discretion in the management or management power over the busi- and
S-74 5459 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP control of the business and the activities ness and affairs of the AIMCO Operating and operations of your partnership for the Partnership. The OP Unitholders have the purposes set forth in your partnership's right to vote on certain matters described agreement of limited partnership. In the under "Comparison of Your Units and AIMCO OP exercise of its authority, it makes all Units -- Voting Rights" below. The general decisions affecting the conduct of the partner may not be removed by the OP business of your partnership. The general Unitholders with or without cause. partner possesses and may enjoy and exercise all of the rights and powers of general In addition to the powers granted a general partner as more particularly provided under partner of a limited partnership under applicable law, except to the extent any applicable law or that are granted to the such rights are limited or restricted by the general partner under any other provision of express provisions of your partnership's the AIMCO Operating Partnership Agreement, agreement of limited partnership. Limited the general partner, subject to the other partners may not take part in the management provisions of the AIMCO Operating of the business, affairs and operations of Partnership Agreement, has full power and your partnership, transact any business for authority to do all things deemed necessary your partnership or have any power, right or or desirable by it to conduct the business authority to enter into any agreement, of the AIMCO Operating Partnership, to execute or sign documents for, make exercise all powers of the AIMCO Operating representations on behalf of or to otherwise Partnership and to effectuate the purposes act so as to bind your partnership in any of the AIMCO Operating Partnership. The manner. AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship, excepting only acts of malfeasance, indemnification of AIMCO, or any director or gross negligence or actual officer of AIMCO (in its capacity as the misrepresentation. In addition, the general previous general partner of the AIMCO partner and its affiliate are entitled to Operating Partnership), the general partner, indemnification by your partnership for any any officer or director of general partner and all acts performed by them in good faith or the AIMCO Operating Partnership and such belief that the act or omission was in the other persons as the general partner may best interests of your partnership and which designate from and against all losses, are reasonably within the scope of the claims, damages, liabilities, joint or authority conferred upon them by your several, expenses (in- partner-
S-75 5460 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's agreement of limited partnership or cluding legal fees), fines, settlements and by your partnership, excepting only acts of other amounts incurred in connection with malfeasance, gross negligence or actual any actions relating to the operations of misrepresentation; provided, however, that the AIMCO Operating Partnership, as set such indemnity will be paid out of and only forth in the AIMCO Operating Partnership to the extent of your partnership's assets. Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause. A the business and affairs of the AIMCO general partner may not transfer, assign, Operating Partnership. The general partner sell, withdraw or otherwise dispose of its may not be removed as general partner of the interest unless it obtains the prior written AIMCO Operating Partnership by the OP consent of those persons owning more than Unitholders with or without cause. Under the 50% of the units and satisfies other AIMCO Operating Partnership Agreement, the conditions set forth in your partnership's general partner may, in its sole discretion, agreement of limited partnership. Such con- prevent a transferee of an OP Unit from sent is also necessary for the approval of a becoming a substituted limited partner new general partner. A limited partner may pursuant to the AIMCO Operating Partnership not transfer his interests without the Agreement. The general partner may exercise written consent of the general partner which this right of approval to deter, delay or may be withheld at the sole discretion of hamper attempts by persons to acquire a the general partner. controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the outstanding partnership and as required by law. Amend- Common OP Units, excluding AIMCO ments of specified provisions of your partnership's
S-76 5461 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership may be made and certain other limited exclusions (a only with the prior written consent of all "Majority in Interest"). Amendments to the partners. Other amendments must be approved AIMCO Operating Partnership Agreement may be by the limited partners owning more than 50% proposed by the general partner or by of the units. holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $20,000 annually for its services its capacity as general partner of the AIMCO as general partner. Moreover, the general Operating Partnership. In addition, the partner or certain affiliates may be AIMCO Operating Partnership is responsible entitled to compensation for additional for all expenses incurred relating to the services rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of the losses of liability of the OP Unitholders for the your partnership beyond their obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-77 5462 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties In general, your partnership's agreement of Unless otherwise provided for in the limited partnership and the AIMCO Operating relevant partnership agreement, Delaware law Partnership Agreement have limitations on generally requires a general partner of a the liability of the general partner but Delaware limited partnership to adhere to such limitations differ in terms and provide fiduciary duty standards under which it owes more protection for the general partner of its limited partners the highest duties of the AIMCO Operating Partnership. good faith, fairness and loyalty and which generally prohibit such general partner from The general partner must manage and control taking any action or engaging in any the affairs of your partnership to the best transaction as to which it has a conflict of of its abilities and use its best efforts to interest. The AIMCO Operating Partnership carry out the business of your partnership Agreement expressly authorizes the general as set forth in your partnership's agreement partner to enter into, on behalf of the of limited partnership. The general part- AIMCO Operating Partnership, a right of ner must devote such time and attention to first opportunity arrangement and other the business, affairs and operations of your conflict avoidance agreements with various partnership as may be necessary for the affiliates of the AIMCO Operating proper performance of its duties. However, Partnership and the general partner, on such the general partner may engage in or hold terms as the general partner, in its sole interests in other business ventures of and absolute discretion, believes are every kind and description for its own advisable. The AIMCO Operating Partnership account including, without limitation, Agreement expressly limits the liability of ventures such as those undertaken by your the general partner by providing that the partnership and your partnership and the general partner, and its officers and partners will have no rights in and to such directors will not be liable or accountable independent business ventures or the income in damages to the AIMCO Operating and profits derived therefrom. Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the
S-78 5463 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating
S-79 5464 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agreement Units. See "Description of Operating Partnership of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your partnership; outstanding, in addition to proceedings, an assignment remove a general partner for any other vote or consent of for the benefit of creditors cause; and approve or partners required by law or and certain transfers by the disapprove the sale of all by the AIMCO Operating general partner of its or substantially all of the Partnership Agreement, the interest in the AIMCO assets of your partnership. affirmative vote or consent Operating Partnership or the of holders of at least 50% admission of a successor In general, you have greater of the outstanding Preferred general partner. voting rights in your OP Units will be necessary partnership than you will for effecting any amendment Under the AIMCO Operating have as an OP Unitholder. OP of any of the provisions of Partnership Agreement, the Unitholders cannot remove the Partnership Unit general partner has the the general partner of the Designation of the Preferred power to effect the AIMCO Operating Partnership. OP Units that materially and acquisition, sale, transfer, adversely affects the rights exchange or other A general partner may cause or preferences of the disposition of any assets of the dissolution of your holders of the Preferred OP the AIMCO Operating partnership by retiring when Units. The creation or Partnership (including, but there is no remaining issuance of any class or not limited to, the exercise general partner unless, series of partnership units, or grant of any conversion, within sixty days of the including, without option, privilege or retirement of the general limitation, any partner- subscription right or any partner, the limited part- ship units that may have other right available in ners owning more than 50% of rights senior or superior to connection with any assets the then outstanding units the Preferred OP Units, at any time held by the elect a new general partner shall not be deemed to AIMCO Operating Partnership) who decides to continue your materially adversely affect or the merger, partnership with the the rights or preferences of consolidation, approval of the limited the holders of Preferred OP reorganization or other partners owning more than Units. With respect to the combination of the AIMCO 50% of the then outstanding exercise of the above Operating Partnership with units. described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partner-
S-80 5465 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship Act (including, without limitation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion Cash Flow as the general and from time to time on or determine, of Available Cash partner may, in its discre- after the fifth anniversary (as defined in the AIMCO tion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective interests most recently issued AIMCO in the AIMCO Operating non-convertible preferred Partnership on such record stock which ranks on a parity with its
S-81 5466 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Class H Cumulative Preferred date. Holders of any other Stock. Such distributions Preferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-82 5467 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) the inter- securities exchange. The transferability of the OP est being acquired by the Preferred OP Units are Units. Until the expiration assignee consists of an subject to restrictions on of one year from the date on integral multiple of half transfer as set forth in the which an OP Unitholder units, (2) a written assign- AIMCO Operating Partnership acquired OP Units, subject ment has been duly executed Agreement. to certain exceptions, such and acknowledged by the OP Unitholder may not assignor and assignee, (3) Pursuant to the AIMCO transfer all or any por- the written approval of the Operating Partnership tion of its OP Units to any general partner which may be Agreement, until the transferee without the withheld in the sole and expiration of one year from consent of the general absolute discretion of the the date on which a holder partner, which consent may general partner has been of Preferred OP Units be withheld in its sole and granted, (4) the assignor or acquired Preferred OP Units, absolute discretion. After the assignee pays a transfer subject to certain the expiration of one year, fee, (5) the transfer will exceptions, such holder of such OP Unitholder has the not result in a termination Preferred OP Units may not right to transfer all or any of your partnership for tax transfer all or any portion portion of its OP Units to purposes, (6) the general of its Preferred OP Units to any person, subject to the partner has received an any transferee without the satisfaction of certain con- opinion from counsel that consent of the general ditions specified in the such transfer does not partner, which consent may AIMCO Operating Partnership violate any applicable be withheld in its sole and Agreement, including the securities law and will not absolute discretion. After general partner's right of result in the termination of the expiration of one year, first refusal. See your partnership for tax such holders of Preferred OP "Description of OP Units -- purposes and (7) the Units has the right to Transfers and Withdrawals" assignor and assignee have transfer all or any portion in the accompanying complied with such other of its Preferred OP Units to Prospectus. conditions as set forth in any person, subject to the your partnership's agreement satisfaction of certain After the first anniversary of limited partnership. conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-83 5468 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 5469 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 5470 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 5471 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 5472 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 5473 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 5474 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 5475 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 5476 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-92 5477 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 5478 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $37,503 in 1996, $39,810 in 1997 and $17,704 in 1998. The property manager received management fees of $41,083 in 1996, $41,398 in 1997 and $42,843 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 5479 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $228,113 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between negative 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 5480 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-96 5481 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statement of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statement of Cash Flows for the nine months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Statements of Assets, Liabilities and Partners' Deficit as of December 31, 1997 and 1996 (unaudited)................. F-6 Statements of Revenues and Expenses and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996 (unaudited)............................................... F-7 Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited)...................................... F-8 Notes to Financial Statements............................... F-9
F-1 5482 VILLA NOVA CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 43,696 Other Assets................................................ 232,485 Investment Property: Land...................................................... $ 157,350 Building and related personal property.................... 3,390,291 ----------- 3,547,641 Less: Accumulated depreciation............................ (1,937,527) 1,610,114 ----------- ---------- Total Assets...................................... $1,886,295 ========== LIABILITIES AND PARTNERS' CAPITAL Other accrued liabilities................................... $ 177,401 Notes payable............................................... 2,332,232 Partners' deficit........................................... (623,338) ---------- Total liabilities and partners' deficit........... $1,886,295 ==========
F-2 5483 VILLA NOVA CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ----------- ---------- Revenues Rental income............................................. $ 581,894 $573,009 Other income.............................................. 46,385 37,236 --------- -------- Total revenues.................................... 628,279 610,245 Expenses: Operating expenses........................................ 440,794 291,545 Depreciation expense...................................... 117,264 114,867 Interest expense.......................................... 161,516 165,700 Property tax expense...................................... 59,215 59,410 --------- -------- Total expenses.................................... 778,789 631,522 Net income........................................ $(150,510) $(21,277) ========= ========
F-3 5484 VILLA NOVA CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1998 1997 ----------- ---------- Operating activities: Net income................................................ $(150,510) $(21,277) Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 117,264 114,867 Changes in accounts: Receivables and deposits and other assets.............. (13,927) (34,774) Accounts payable and accrued expenses.................. 142,434 32,120 --------- -------- Net cash provided by (used in) operating activities...................................... 95,261 90,936 --------- -------- Investing activities: Property improvements and replacements.................... (55,555) (49,936) --------- -------- Net cash provided by (used in) investing activities....... (55,555) (49,936) --------- -------- Financing activities: Payments on mortgage...................................... (42,485) (38,300) --------- -------- Net cash provided by (used in) financing activities....... (42,485) (38,300) --------- -------- Partners' distributions Net increase (decrease) in cash and cash equivalents...... (2,779) 2,700 Cash and cash equivalents at beginning of year............ 46,475 35,399 --------- -------- Cash and cash equivalents at end of period................ $ 43,696 $ 38,099 ========= ========
F-4 5485 VILLA NOVA, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Villa Nova, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 5486 VILLA NOVA, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 -- UNAUDITED F-6 5487 VILLA NOVA, LIMITED BALANCE SHEET -- UNAUDITED ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 46,475 $ 35,399 Receivables and deposits.................................... 31,975 26,319 Restricted escrows (Note B)................................. 134,143 128,630 Other assets................................................ 52,440 57,437 Investment properties (Note C): Land...................................................... 157,350 157,350 Buildings and related personal property................... 3,334,736 3,282,711 ----------- ----------- 3,492,086 3,440,061 Less accumulated depreciation............................. (1,820,263) (1,666,128) ----------- ----------- 1,671,823 1,773,933 ----------- ----------- $ 1,936,856 $ 2,021,718 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 6,002 $ 14 Payable to affiliate (Note D)............................. 1,696 1,696 Tenant security deposits liabilities...................... 12,733 12,055 Other liabilities......................................... 14,536 14,083 Mortgage notes payable (Note C)........................... 2,374,717 2,427,264 Partners' deficit........................................... (472,828) (433,394) ----------- ----------- $ 1,936,856 $ 2,021,718 =========== ===========
See accompanying notes to financial statements. F-7 5488 VILLA NOVA, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT (UNAUDITED)
YEARS ENDED DECEMBER 31, ---------------------- 1997 1996 --------- --------- Revenues: Rental income............................................. $ 786,461 $ 721,219 Other income.............................................. 48,222 54,749 --------- --------- Total revenues.................................... 834,683 775,968 --------- --------- Expenses: Operating (Note D)........................................ 386,621 359,373 General and administrative (Note D)....................... 41,437 41,886 Depreciation.............................................. 154,135 149,774 Interest.................................................. 220,250 224,549 Property taxes............................................ 71,674 71,289 --------- --------- Total expenses.................................... 874,117 846,871 --------- --------- Net loss.......................................... (39,434) (70,903) Partners' deficit at beginning of year.................... (433,394) (362,491) --------- --------- Partners' deficit at end of year.......................... $(472,828) $(433,394) ========= =========
See Accompanying Notes to Financial Statements F-8 5489 VILLA NOVA, LIMITED STATEMENT OF CASH FLOWS -- UNAUDITED
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net loss.................................................. $(39,434) $(70,903) Adjustments to reconcile net income (loss) to net cash provided by operating activities...................... Depreciation........................................... 154,135 149,774 Amortization of discounts and loan costs............... 28,714 27,894 Changes in accounts: Receivables and deposits............................. (5,656) 14,539 Other assets......................................... (4,701) -- Accounts payable and payable to affiliate............ 5,988 (5,660) Tenant security deposit liabilities.................. 678 (2,243) Other liabilities.................................... 453 (2,791) -------- -------- Net cash provided by operating activities......... 140,177 110,610 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (52,025) (50,194) Deposits to restricted escrows............................ (5,513) (2,870) -------- -------- Net cash used in investing activities............. (57,538) (53,064) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (71,563) (66,342) -------- -------- Net cash used in financing activities............. (71,563) (66,342) -------- -------- Net increase (decrease) in cash and cash equivalents........ 11,076 (8,796) Cash and cash equivalents at beginning of year.............. 35,399 44,195 -------- -------- Cash and cash equivalents at end of year.................... $ 46,475 $ 35,399 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $191,536 196,758 ======== ========
See Accompanying Notes to Financial Statements F-9 5490 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Villa Nova, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated April 23, 1984. The Partnership owns and operates a 126 unit multi-family housing complex, Villa Nova Apartments, in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $47,739 and $57,437, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-10 5491 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $134,143 and $128,630, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $21,394, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,397,167 $2,468,730 Second mortgage note payable in interest only monthly installments of $531, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,835 83,835 ---------- ---------- Principal balance at year end............................... 2,481,002 2,552,565 Less unamortized discount................................... (106,285) (125,301) ---------- ---------- $2,374,717 $2,427,264 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998.................................................... $ 77,196 1999.................................................... 83,271 2000.................................................... 89,825 2001.................................................... 96,895 2002.................................................... 2,133,815 ---------- $2,481,002 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. F-11 5492 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ----------- (UNAUDITED) Property management fee......................... $41,398 $41,083 Partnership administration fee.................. $20,004 $20,004 Reimbursement for services of affiliates........ $17,998 $15,803 Payable to affiliate -- property management fee........................................... $ 1,696 $ 1,696 Construction fee................................ $ 112 $ --
F-12 5493 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 5494 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 5495 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 5496 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 5497 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 5498 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 5499 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 5500 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 5501 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 5502 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 5503 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 5504 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 5505 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 5506 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 5507 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 5508 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 5509 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 5510 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 5511 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 5512 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 5513 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 5514 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 5515 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 5516 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 5517 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 5518 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 5519 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 5520
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 5521 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 5522
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 5523 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5524 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5525 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5526
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5527 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5528 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5529 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5530
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5531 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5532 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5533 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 5534 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 5535 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 5536 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 5537 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 5538 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 5539 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 5540 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5541 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 5542 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 5543 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Villa Nova Ltd Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Villa Nova Ltd (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $26,070 in cash, or 674.00 Common OP Units of the Purchaser, or 1,043 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5544 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 5545 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5546 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 5547
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 5548
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 5549
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 5550
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5551 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5552 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 12, 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Walker Springs, Limited Partnership in exchange for your choice of: 319.00 of our 8.0% Class Two Partnership Preferred Units; 206.25 of our Partnership Common Units; or $7,971 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 24% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $7,971 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5553 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Walker Springs, Limited Partnership............... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Lack of Availability of Audited Financial Statements............................... S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-44 General...................................... S-44 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-46 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-47 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-48 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-50 THE OFFER...................................... S-53 Terms of the Offer; Expiration Date.......... S-53 Acceptance for Payment and Payment for Units...................................... S-53 Procedure for Tendering Units................ S-54 Withdrawal Rights............................ S-57 Extension of Tender Period; Termination; Amendment.................................. S-57 Proration.................................... S-58 Fractional OP Units.......................... S-58
i 5554
PAGE ----- Future Plans of the AIMCO Operating Partnership................................ S-58 Voting by the AIMCO Operating Partnership.... S-59 Dissenters' Rights........................... S-59 Conditions of the Offer...................... S-59 Effects of the Offer......................... S-62 Certain Legal Matters........................ S-62 Fees and Expenses............................ S-64 Accounting Treatment......................... S-64 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-65 Tax Consequences of Exchanging Units Solely for OP Units............................... S-65 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-66 Tax Consequences of Exchanging Units Solely for Cash................................... S-66 Disguised Sale Treatment..................... S-66 Adjusted Tax Basis........................... S-67 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-67 Passive Activity Losses...................... S-67 Tax Reporting................................ S-68 Foreign Offerees............................. S-68 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-68 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-70 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-77 DESCRIPTION OF PREFERRED OP UNITS.............. S-83 General...................................... S-83 Ranking...................................... S-83
PAGE ----- Distributions................................ S-83 Allocation................................... S-84 Liquidation Preference....................... S-84 Redemption................................... S-85 Voting Rights................................ S-85 Restrictions on Transfer..................... S-86 Description of Class I Preferred Stock....... S-86 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-88 CONFLICTS OF INTEREST.......................... S-92 Conflicts of Interest with Respect to the Offer...................................... S-92 Conflicts of Interest that Currently Exist for Your Partnership....................... S-92 Competition Among Properties................. S-92 Features Discouraging Potential Takeovers.... S-92 Future Exchange Offers....................... S-92 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-93 LEGAL MATTERS.................................. S-94 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5555 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP") AIMCO, acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,188,000, less approximately $245,161 of deferred maintenance. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 5556 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5557 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 5558 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 5559 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's S-5 5560 expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders S-6 5561 of Common OP Units. This is equivalent to a distribution of $638.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $515.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's [property] and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. S-7 5562 - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 5563 VALUATION OF UNITS We determined the offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 359,000 Capitalization rate......................................... 11.25% ----------- Gross valuation of partnership properties................... $ 3,188,000 Plus: Cash and cash equivalents............................. 101,013 Plus: Other partnership assets, net of security deposits.... 272,439 Less: Mortgage debt, including accrued interest............. (2,672,111) Less: Accounts payable and accrued expenses................. (34,579) Less: Other liabilities..................................... (35,708) ----------- Partnership valuation before taxes and certain costs........ 819,054 Less: Disposition fees...................................... (95,640) Less: Extraordinary capital expenditures and deferred maintenance............................................... (245,161) Less: Closing costs......................................... (79,700) ----------- Estimates net valuation of your partnership................. 398,553 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 398,553 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 7,971 =========== Cash consideration per unit................................. $ 7,971 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $7,971 by the $25 liquidation preference of each Preferred OP Unit to get 319.00 Preferred OP Units per unit. S-9 5564 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $7,971 by a price of $38.69 to get 206.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 7,971 Partnership Preferred Units................................. $ 7,971 Partnership Common Units.................................... $ 7,971 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 7,971 Estimated going concern value............................. $ 6,767 Net book value (deficit).................................. $(26,225)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 5565 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Walker Springs, Limited Partnership is a Tennessee limited partnership which was formed on May 13, 1982 for the purpose of owning and operating a single apartment property located in Knoxville, Tennessee, known as "Walker Springs Apartments." Your partnership's property consists of 168 apartment units and was built in 1974. Your partnership has no employees. As of September 30, 1998, there were 50 units of limited partnership interest issued and outstanding, which were held of record by 63 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 50 limited partnership units in 1982. Between January 1, 1993 and December 31, 1998 your partnership did not pay cash distributions. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,498,402, payable to Marine Midland, Bank of America and FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $90,284, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 5566 THE OFFER In exchange for each of your units, we are offering you a choice of: - 319.00 of our Class Two Partnership Preferred Units; - 206.25 of our Partnership Common Units; or - $7,971 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 24% of the outstanding 50 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 319.00 Preferred OP Units, 206.25 Common OP Units, or $7,971 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 24% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 5567 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 5568 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $7,971 in cash, 319.00 Preferred OP Units or 206.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 5569 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $7,971. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $26,283 for the fiscal year ended December 31, 1998. The property manager received management fees of $48,678 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $94,656 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5570 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5571
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5572 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5573
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5574 SUMMARY FINANCIAL INFORMATION OF WALKER SPRINGS, LIMITED PARTNERSHIP The summary financial information of Walker Springs, Limited for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Walker Springs, Limited for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on unaudited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements."
WALKER SPRINGS, LIMITED PARTNERSHIP FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- -------- OPERATING DATA: Total Revenues............................ $719,345 $684,995 $948,831 $951,121 $962,014 $929,663 $887,429 Net Income/(Loss)......................... (90,026) (53,479) (86,660) (57,363) (20,862) (27,196) (31,648) Net Income per limited partnership unit.................................. (1,801) (1,070) (1,733) (1,147) (417) (544) (633) Distributions per limited partnership unit.................................. 6 53 -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)..............................
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 131,987 $ 113,029 $ 188,313 $ 133,047 $ 89,112 $ 102,655 $ 208,712 Real Estate, Net of Accumulated Depreciation... 1,700,247 1,837,583 1,786,704 1,905,134 2,006,637 2,043,981 2,013,058 Total Assets................. 2,081,773 2,264,205 2,234,415 2,358,597 2,462,473 2,533,717 2,598,315 Notes Payable................ 2,509,993 2,572,767 2,557,650 2,614,245 2,666,110 2,713,640 2,757,197 General Partners' Capital/(Deficit).......... (4,870) (3,614) (3,972) (3,106) (2,532) (2,324) (2,052) Limited Partners' Capital/(Deficit).......... (482,089) (357,804) (393,271) (307,477) (250,688) (230,034) (203,110) Partners' Capital/(Deficit).......... (486,959) (361,418) (397,243) (310,583) (253,220) (232,358) (205,162) Total Distributions.......... 310 2,644 -- -- -- -- -- Book value per limited partnership unit........... (9,838) (7,301) (8,025) (6,274) (5,116) (4,694) (4,145) Net increase (decrease) in cash and cash equivalents................ (56,326) (20,018) (15,057) 44,935 (13,543) (106,057) 208,712 Net cash provided by operating activities....... $ 54,587 $ 101,100 152,514 200,021 180,270 141,263 (202,225) Ratio of earnings to fixed charges.................... 0.49/1 0.70/1 0.64/1 0.77/1 0.92/1 0.89/1 0.87/1 0.49 0.70 0.64 0.77 0.92 0.89 0.87 LP Units Outstanding........... 49.5 LP%............................ 99% GP%............................ 1%
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
WALKER AIMCO SPRINGS, OPERATING LIMITED PARTNERSHIP PARTNERSHIP ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $515.63 $0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $638.00 $0
S-20 5575 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 5576 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,188,000 less approximately $245,161 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 5577 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 5578 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." LACK OF AVAILABILITY OF AUDITED FINANCIAL STATEMENTS. The unaudited financial statements of Walker Springs, Limited have been prepared from the books and records of your partnership in accordance with generally accepted accounting principles. An audit of your partnership's financial statements could not be completed because the general partner does not have sufficient audit evidence to support the historical capitalized costs of the partnership's properties, including the initial construction, which occurred in 1982. Nevertheless, the general partner believes that such financial statements appropriately reflect the financial condition and results of operations of the partnership for the periods presented in accordance with generally accepted accounting principles. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. S-24 5579 UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. S-25 5580 DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time.The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-26 5581 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.51% interest, consisting of a 1.01% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 5582 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 5583 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on November, 2002. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all S-29 5584 limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of S-30 5585 $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $638.00 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $515.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. S-31 5586 - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location C (fair) and its condition C (fair). Generally, we assign an initial capitalization rate of 11.00% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 11.25%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 5587 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Estimated Total Gross Property Value $358,705 11.25% $3,188,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $944,847, less total expenses of $535,742 and recurring replacement costs of $50,400. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $398,553. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 359,000 Capitalization rate......................................... 11.25% ----------- Gross valuation of partnership properties................... 3,188,000 Plus: Cash and cash equivalents............................. 101,013 Plus: Other partnership assets, net of security deposits.... 272,439 Less: Mortgage debt, including accrued interest............. (2,672,111) Less: Accounts payable and accrued expenses................. (34,579) Less: Other liabilities..................................... (35,708) ----------- Partnership valuation before taxes and certain costs........ 819,054 Less: Disposition fees...................................... (95,640) Less: Extraordinary capital expenditures and deferred maintenance............................................... (245,161) Less: Closing costs......................................... (79,700) ----------- Estimated net valuation of your partnership................. 398,553 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 398,553 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 7,971 =========== Cash consideration per unit................................. 7,971 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $7,971 by the $25 liquidation preference of each Preferred OP Unit to get 319.00 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $7,971 by a price of $38.69 to get 206.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-33 5588 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $398,553 or .07% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net loss of your partnership has increased from $53,479 for the nine months ended September 30, 1997 to $90,026 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-34 5589 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $7,971, based on a total estimated value of your partnership's property of $3,188,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $638.00 per year on the number of Preferred OP Units, or distributions of $515.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your S-35 5590 units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 5591 Under your partnership's agreement of limited partnership, the term of the partnership will continue until 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 7,971 Partnership preferred units................................. 7,971(1) Partnership common units.................................... 7,971(1) Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 7,971 Estimated going concern value............................. $ 6,767 Net book value............................................ $(26,225)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 5592 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 35%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $6,767 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $(26,225) and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $6,929 per unit, going concern value of $4,526 per unit and liquidation value of $5,394 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 5593 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(1,042), $(3,445) and $(2,577). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnerships believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 5594 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
WALKER SPRINGS --------- Total Revenues............................................ $ 997,606 Operating Expenses........................................ (566,930) Replacement Reserves -- Net............................... (76,319) Debt Service.............................................. (283,344) Capital Expenditures...................................... (58,145) --------- Net Cash Flow................................... $ 12,868 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. S-40 5595 In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 11.25%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; (iii) extraordinary capital expenditure estimates in the amount of $245,161; and fees to the general partner of 95,640. Stanger observed that your partnership liquidation value of $398,553 was divided by the total units outstanding of 50 to provide the liquidation value per unit of $7971. S-41 5596 Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $359,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.75%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 35%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.8%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 50 to achieve management's estimate of going concern value of $6,767 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $7,971 per unit is equal to management's estimate of liquidation value, and reflects a 18% premium to management's estimate of going concern value of $6,767. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following the closing of this transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. S-42 5597 Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 35% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 35% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.8% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 80% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $6,929, $4,526, and $5,394 representing premiums (discounts) to the offer price of (13%), (43%) and (32%). See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or S-43 5598 Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Walker Springs, Limited Partnership, is a Tennessee limited partnership which completed a private offering in 1982. Insignia acquired the general partner of your partnership in 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 63 limited partners of your partnership and a total of 49.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. S-44 5599 YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 13, 1982 for the purpose of owning an apartment property located in Knoxville, Tennessee, known as "Walker Springs Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1974 and consists of 168 apartment units. Your partnership's property had an average occupancy rate of approximately 89.33% in 1998, 94.05% in 1997 and 94.05% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $251,161 and are intended to be paid for out of cash flow or borrowings. Renovation items include electrical, siding, stairwells, balconies, sidewalks, parking lot, landscaping and pool. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $446 $435 $451 $427 $415
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $47,644 of $1,720,000 of assessed valuation with a current yearly tax rate of 2.77%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 2.83% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-45 5600 In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 89% and $444, respectively, at December 31, 1998, compared to 94% and $446, respectively, at December 31, 1997. In particular, the general partner noted that it expects to spend approximately $245,161 for capital improvements at the property in 1999 to repair and improve the property's electrical, siding, stairwells, balconies, sidewalks, parking lot, landscaping and pool. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,498,402, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of $90,284, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no loans outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. S-46 5601 LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,395,000 of limited partnership units in 1982 for $47,900 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July 1, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The original cost per unit was $47,900. From 1993 to 1998 your partnership has paid no distributions. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid S-47 5602 treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0.0 0.00% 0 1995......................... 0.0 0.00% 0 1996......................... 0.0 0.00% 0 1997......................... 0.0 0.00% 0 1998......................... 0.5 10.01% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.51% interest in your partnership, including .5 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $32,927 1995........................................................ 36,266 1996........................................................ 28,641 1997........................................................ 25,249 1998........................................................ 26,283
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $48,314 1995........................................................ 46,478 1996........................................................ 47,212 1997........................................................ 23,711 1998........................................................ 48,678
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-48 5603 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
WALKER SPRINGS, LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents...... $ 131,987 $ 113,029 $ 188,313 $ 133,047 $ 89,112 $ 102,655 $ 208,712 Land & Building................ 4,582,313 4,517,812 4,519,056 4,435,836 4,340,819 4,194,536 3,990,464 Accumulated Depreciation....... (2,882,066) (2,680,229) (2,732,352) (2,530,702) (2,334,182) (2,150,555) (1,977,406) Other Assets................... 249,539 313,593 259,398 320,416 366,724 387,081 376,585 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $ 2,081,773 $ 2,264,205 $ 2,234,415 $ 2,358,597 $ 2,462,473 $ 2,533,717 $ 2,598,315 =========== =========== =========== =========== =========== =========== =========== Notes Payable.................. $ 2,509,993 $ 2,572,767 $ 2,557,650 $ 2,614,245 $ 2,666,110 $ 2,713,640 $ 2,757,197 Other Liabilities.............. 58,739 52,856 74,008 54,935 49,583 52,435 46,280 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $ 2,568,732 $ 2,625,623 $ 2,631,658 $ 2,669,180 $ 2,715,693 $ 2,766,073 $ 2,803,477 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit....... $ (486,959) $ (361,418) $ (397,243) $ (310,583) $ (253,220) $ (232,358) $ (205,162) =========== =========== =========== =========== =========== =========== ===========
WALKER SPRINGS, LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................. $ 676,237 $ 645,172 $ 899,815 $ 877,481 $ 909,495 $ 861,110 $ 836,041 Other Income................... 43,108 39,823 49,016 73,640 52,519 68,553 51,388 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue.......... $ 719,345 $ 684,995 $ 948,831 $ 951,121 $ 962,014 $ 929,663 $ 887,429 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............. $ 421,683 $ 345,960 $ 507,200 $ 479,494 $ 464,618 $ 445,154 $ 432,253 General & Administrative....... 25,398 20,386 30,488 31,692 33,657 50,219 44,734 Depreciation................... 150,023 149,835 201,650 196,520 183,627 172,800 159,728 Interest Expense............... 175,236 179,742 241,853 246,583 250,917 239,390 243,828 Property Taxes................. 37,031 42,551 54,300 54,195 50,097 49,096 38,534 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses......... $ 809,371 $ 738,474 $ 1,035,491 $ 1,008,484 $ 982,876 $ 956,859 $ 919,077 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (loss) before extraordinary items.......... $ (90,026) $ (53,479) $ (86,660) $ (57,363) $ (20,862) $ (27,196) $ (31,648) Extraordinary Items............ -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income (loss).............. $ (90,026) $ (53,479) $ (86,660) $ (57,363) $ (20,862) $ (27,196) $ (31,648) =========== =========== =========== =========== =========== =========== =========== Net Income per limited partnership unit............. $ (1,801) $ (1,070) $ (1,733) $ (1,147) $ (417) $ (544) $ (633) =========== =========== =========== =========== =========== =========== =========== Distributions per limited partnership unit............. 6 53 -- -- -- -- -- =========== =========== =========== =========== =========== =========== ===========
S-49 5604 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP WALKER SPRINGS, LIMITED PARTNERSHIP Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized a net loss of $90,026 for the nine months ended September 30, 1998, compared to net loss of $53,479 for the nine months ended September 30, 1997. The decrease in net income of $36,547 or 68% was primarily the result of increased operating expenses. This is discussed in more detail in the following paragraph. REVENUES Rental and other property revenues from the partnership's property totaled $719,345 for the nine months ended September 30, 1998, compared to $684,995 for the nine months ended September 30, 1997, an increase of $34,350 or 5.01%. The increase is due to increase in rental rates of approximately 5% over the prior year, and an increase in occupancy rates as compared to the prior year. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $421,683 for the nine months ended September 30, 1998, compared to $345,960 for the nine months ended September 30, 1997, an increase of $75,723 or 21.89%. The increase in operating expense is due mainly to increases in non-capitalizable property improvements, including interior painting. Management expenses totaled $36,660 for the nine months ended September 30, 1998, compared to $35,091 for the nine months ended September 30, 1997, an increase of $1,569 or 4.47%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $25,398 for the nine months ended September 30, 1998 compared to $20,386 for the nine months ended September 30, 1997, an increase of $5,012 or 24.59%. The increase is primarily due to an increase in non-capitalizable personal computer costs. INTEREST EXPENSE Interest expense which includes the amortization of deferred financing costs, totaled $175,236 for the nine months ended September 30, 1998, compared to $179,742 for the nine months ended September 30, 1997, a decrease of $4,506, or 2.50%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1997 NET INCOME Your partnership recognized a net loss of $86,660 for the year ended December 31, 1997, compared to a net loss of $57,363 for the year ended December 31, 1996. The increase of $29,297, or 51.07% was primarily the result of a increase in operating expenses. REVENUES Rental and other property revenues from the partnership's property totaled $948,831 for the year ended December 31, 1997, compared to $951,121 for the year ended December 31, 1996, a decrease of $2,290 or S-50 5605 .24%. The decrease is due to a decrease in occupancy rates of approximately 2% to 96% offset partially by an increase of 1% in rental rates. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $507,200 for the year ended December 31, 1997, compared to $479,494 for the year ended December 31, 1996, an increase of $27,706 or 5.78%. The increase in operating expenses is attributable to an increase in salary expenses, advertising and rental expenses of $28,000. Management expenses totaled $47,212 for the year ended December 31, 1997, compared to $46,478 for the year ended December 31, 1996, an increase of $734, or 1.58%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $30,488 for the year ended December 31, 1997 compared to $31,692 for the year ended December 31, 1996, a decrease of $1,204 or 3.80%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $241,853 for the year ended December 31, 1997, compared to $246,583 for the year ended December 31, 1996, a decrease of $4,730, or 1.92%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized a net loss of $57,363 for the year ended December 31, 1996, compared to a net loss of $20,862 for the year ended December 31, 1995. The increase of $36,502, or 174.96% was primarily the result of a decrease in revenues and an increase in operating expenses. REVENUES Rental and other property revenues from the partnership's property totaled $951,121 for the year ended December 31, 1996, compared to $962,014 for the year ended December 31, 1995, a decrease of $10,893 or 1.13 %. The decrease is due to a decrease in rental rates of approximately 4%, coupled with a decrease in the occupancy rates. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $479,494 for the year ended December 31, 1996, compared to $464,618 for the year ended December 31, 1995, an increase of $14,876 or 3.20%. Management expenses totaled $46,478 for the year ended December 31, 1996, compared to $48,314 for the year ended December 31, 1995, a decrease of $1,836, or 3.80%. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $31,692 for the year ended December 31, 1996 compared to $33,657 for the year ended December 31, 1995, a decrease of $1,965 or 5.84%. This is due to general decreases in various administrative expenses. S-51 5606 INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $246,583 for the year ended December 31, 1996, compared to $250,917 for the year ended December 31, 1995, a decrease of $4,334, or 1.73%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the year. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $131,987 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $114,462, was $2,509,993. The mortgages require monthly payments of approximately $23,612 until November 2002. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-52 5607 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 24% of the outstanding 50 units of your partnership (up to 11.88 units) for consideration per unit of (i) 319.00 Preferred OP Units, (ii) 206.25 Common OP Units, or (iii) $7,971 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed S-53 5608 and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY S-54 5609 THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered S-55 5610 that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-56 5611 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-57 5612 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 24% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 24%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-58 5613 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-59 5614 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-60 5615 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-61 5616 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-62 5617 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-63 5618 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-64 5619 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-65 5620 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-66 5621 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-67 5622 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-68 5623 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-69 5624 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Tennessee law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's property. Partnership is to conduct any business that Subject to restrictions contained in your may be lawfully conducted by a limited partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all acts necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-70 5625 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 50 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and have subsidiaries or other persons in which it other transactions with per- has an equity investment,
S-71 5626 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sons who are partners or who are affiliates and such persons may borrow funds from the of partners. Any and all compensation paid AIMCO Operating Partnership, on terms and to such persons in connection with services conditions established in the sole and performed for your partnership must be absolute discretion of the general partner. commensurate with that which would be paid To the extent consistent with the business to an independent person for similar purpose of the AIMCO Operating Partnership services and all agreements must be in and the permitted activities of the general writing. Your partnership may not make loans partner, the AIMCO Operating Partnership may to any partners but the general partner may transfer assets to joint ventures, limited make loans to your partnership; provided liability companies, partnerships, that the interest and fees received by the corporations, business trusts or other general partner in connection with such business entities in which it is or thereby loans are not in excess of the amounts which becomes a participant upon such terms and would be charged by an unrelated bank and subject to such conditions consistent with the general partner does not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each limited partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partners. Your partnership furnishes such business, residence or mailing address of information to any limited partner the general partner and each other OP requesting the same in writing, upon payment Unitholder. of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your All management powers over the business and partnership business, activities and affairs of the AIMCO Operating Partnership operations is vested solely in the general are vested in AIMCO-GP, Inc., which is the partner. The general partner has full, general partner. No OP Unitholder has any exclusive and complete authority and right to participate in or exercise control discretion in the management and control of or management power over the busi- the business,
S-72 5627 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP activities and operations of your ness and affairs of the AIMCO Operating partnership for the purposes set forth in Partnership. The OP Unitholders have the your partnership's agreement of limited right to vote on certain matters described partnership and makes all decisions under "Comparison of Your Units and AIMCO OP affecting the conduct of the business of Units -- Voting Rights" below. The general your partnership. The general partner partner may not be removed by the OP possesses and may enjoy and exercise all of Unitholders with or without cause. the rights and powers of general partner as more particularly provided under applicable In addition to the powers granted a general law, except to the extent any such rights partner of a limited partnership under may be limited or restricted by the express applicable law or that are granted to the provisions of your partnership's agreement general partner under any other provision of of limited partnership. Limited partners may the AIMCO Operating Partnership Agreement, not take part in the management of the the general partner, subject to the other business, affairs and operations of your provisions of the AIMCO Operating partnership, transact any business for your Partnership Agreement, has full power and partnership, have any power, right or authority to do all things deemed necessary authority to enter into any agreement, or desirable by it to conduct the business execute or sign documents for, make of the AIMCO Operating Partnership, to representation on behalf of nor to otherwise exercise all powers of the AIMCO Operating act so as to bind your partnership in any Partnership and to effectuate the purposes manner. of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship, excepting only acts of malfeasance, indemnification of AIMCO, or any director or gross negligence or actual officer of AIMCO (in its capacity as the misrepresentation. In addition, the general previous general partner of the AIMCO partner and its affiliates are entitled to Operating Partnership), the general partner, indemnification by your partnership for any any officer or director of general partner and all acts performed by them which are or the AIMCO Operating Partnership and such reasonably within the scope of the authority other persons as the general partner may conferred upon them by your partnership's designate from and against all losses, agreement of limited partnership or by your claims, damages, liabilities, joint or partnership, excepting only acts of mal- several, expenses (in-
S-73 5628 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP feasance, gross negligence or actual cluding legal fees), fines, settlements and misrepresentation; provided, however, that other amounts incurred in connection with such indemnity will be paid out of and only any actions relating to the operations of to the extent of partnership assets. the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over owning 75% of the outstanding units may the business and affairs of the AIMCO remove the general partner for cause. The Operating Partnership. The general partner general partner may not transfer, assign, may not be removed as general partner of the sell, withdraw or otherwise dispose of its AIMCO Operating Partnership by the OP interest unless it obtains the prior written Unitholders with or without cause. Under the consent of those persons owning more than AIMCO Operating Partnership Agreement, the 50% of the units and satisfies other general partner may, in its sole discretion, conditions set forth in your partnership's prevent a transferee of an OP Unit from agreement of limited partnership. Such con- becoming a substituted limited partner sent is also necessary for the approval of a pursuant to the AIMCO Operating Partnership new general partner. A limited partner may Agreement. The general partner may exercise not transfer his interests without the this right of approval to deter, delay or written consent of the general partner which hamper attempts by persons to acquire a may be withheld at the sole discretion of controlling interest in the AIMCO Operating the general partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partner to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the partnership and as required by law. Amend-
S-74 5629 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ments of specified provisions of your outstanding Common OP Units, excluding AIMCO partnership's agreement of limited and certain other limited exclusions (a partnership may be made only with the prior "Majority in Interest"). Amendments to the written consent of all partners. Other AIMCO Operating Partnership Agreement may be amendments must be approved by the limited proposed by the general partner or by partners owning 75% of the outstanding holders of a Majority in Interest. Following units. such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $6,000 annually and may receive its capacity as general partner of the AIMCO other fees for additional services. Operating Partnership. In addition, the Moreover, the general partner or certain AIMCO Operating Partnership is responsible affiliates may be entitled to compensation for all expenses incurred relating to the for additional services rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of losses of your liability of the OP Unitholders for the partnership beyond its obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agree-
S-75 5630 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ment constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties In general, your partnership's agreement of Unless otherwise provided for in the limited partnership and the AIMCO Operating relevant partnership agreement, Delaware law Partnership Agreement have limitations on generally requires a general partner of a the liability of the general partner but Delaware limited partnership to adhere to such limitations differ in terms and provide fiduciary duty standards under which it owes more protection for the general partner of its limited partners the highest duties of the AIMCO Operating Partnership. Under your good faith, fairness and loyalty and which partnership's agreement of limited generally prohibit such general partner from partnership, the general partner must manage taking any action or engaging in any and control the affairs of your partnership transaction as to which it has a conflict of to the best of its ability and must exercise interest. The AIMCO Operating Partnership good faith in carrying out the business of Agreement expressly authorizes the general your partnership as set forth in your partner to enter into, on behalf of the partnership's agreement of limited AIMCO Operating Partnership, a right of partnership. The general partner must devote first opportunity arrangement and other such time and attention to the business, conflict avoidance agreements with various affairs and operations of your partnership affiliates of the AIMCO Operating as may be necessary for the proper Partnership and the general partner, on such performance of their duties. However, the terms as the general partner, in its sole general partner may engage in or hold and absolute discretion, believes are interests in other business ventures of advisable. The AIMCO Operating Partnership every kind and description for their own Agreement expressly limits the liability of account including, without limitation, the general partner by providing that the ventures such as those undertaken by your general partner, and its officers and partnership and your partnership and the directors will not be liable or accountable partners will have no rights in and to such in damages to the AIMCO Operating independent business ventures or the income Partnership, the limited partners or as- and profits derived therefrom. signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that consti-
S-76 5631 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refi-
S-77 5632 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning 75% of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may remove as holders of the Common OP termination of the AIMCO the general partner for Units. See "Description of Operating Partnership cause and amend your OP Units" in the accompany- Agreement and certain partnership's agreement of ing Prospectus. So long as transactions such as the limited partnership, subject any Preferred OP Units are institution of bankruptcy to certain limitations which outstanding, in addition to proceedings, an assignment require the approval of all any other vote or consent of for the benefit of creditors of the limited partners in partners required by law or and certain transfers by the order to amend of certain by the AIMCO Operating general partner of its provisions of your Partnership Agreement, the interest in the AIMCO partnership's agreement of affirmative vote or consent Operating Partnership or the limited partnership. The of holders of at least 50% admission of a successor consent of the limited part- of the outstanding Preferred general partner. ners owning a majority of OP Units will be necessary the outstanding units are for effecting any amendment Under the AIMCO Operating necessary to admit a new of any of the provisions of Partnership Agreement, the general partner. In order the Partnership Unit general partner has the for your partnership to dis- Designation of the Preferred power to effect the solve prior to the expiation OP Units that materially and acquisition, sale, transfer, of its term all limited adversely affects the rights exchange or other partners must consent. or preferences of the disposition of any assets of holders of the Preferred OP the AIMCO Operating The general partner may Units. The creation or Partnership (including, but cause the dissolution of issuance of any class or not limited to, the exercise your partnership by retiring series of partnership units, or grant of any conversion, unless the remaining general including, without option, privilege or partner continues your limitation, any partner- subscription right or any partnership or, if there is ship units that may have other right available in no remaining general rights senior or superior to connection with any assets partner, the limited the Preferred OP Units, at any time held by the partners owning more the 50% shall not be deemed to AIMCO Operating Partnership) of the then outstanding materially adversely affect or the merger, units elect a new general the rights or preferences of consolidation, partner who decides to the holders of Preferred OP reorganization or other continue your partnership Units. With respect to the combination of the AIMCO with the approval of the exercise of the above Operating Partnership with limited partners owning more described voting rights, or into another entity, all than 50% of the then each Preferred OP Units without the consent of the outstanding units. shall have one (1) vote per OP Unitholders. Preferred OP Unit. In general, you have greater The general partner may voting rights in your cause the dissolution of the partnership than you will AIMCO have as an
S-78 5633 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS OP Unitholder. OP Operating Partnership by an Unitholders cannot remove "event of withdrawal," as the general partner of the defined in the Delaware AIMCO Operating Partnership. Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion cash funds as the general and from time to time on or determine, of Available Cash partner may, in its discre- after the fifth anniversary (as defined in the AIMCO tion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your part- annual interest rate then on the record date es- nership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective most recently issued AIMCO
S-79 5634 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS non-convertible preferred interests in the AIMCO stock which ranks on a Operating Partnership on parity with its Class H such record date. Holders of Cumulative Preferred Stock. any other Preferred OP Units Such distributions will be issued in the future may cumulative from the date of have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-80 5635 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) the interest securities exchange. The transferability of the OP being acquired by the Preferred OP Units are Units. Until the expiration assignee consists of an subject to restrictions on of one year from the date on integral multiple of half transfer as set forth in the which an OP Unitholder units, (2) a written assign- AIMCO Operating Partnership acquired OP Units, subject ment has been duly executed Agreement. to certain exceptions, such and acknowledged by the OP Unitholder may not assignor and assignee, (3) Pursuant to the AIMCO transfer all or any por- the written approval of the Operating Partnership tion of its OP Units to any general partner which may be Agreement, until the transferee without the withheld in the sole and expiration of one year from consent of the general absolute discretion of the the date on which a holder partner, which consent may general partner has been of Preferred OP Units be withheld in its sole and granted, (4) the assignor or acquired Preferred OP Units, absolute discretion. After the assignee pays a transfer subject to certain the expiration of one year, fee, (5) the transfer will exceptions, such holder of such OP Unitholder has the not result in a termination Preferred OP Units may not right to transfer all or any of your partnership for tax transfer all or any portion portion of its OP Units to purposes and (6) the of its Preferred OP Units to any person, subject to the assignor and assignee have any transferee without the satisfaction of certain con- complied with such other consent of the general ditions specified in the conditions as set forth in partner, which consent may AIMCO Operating Partnership your partnership's agreement be withheld in its sole and Agreement, including the of limited partnership. absolute discretion. After general partner's right of There are no redemption the expiration of one year, first refusal. See rights associated with your such holders of Preferred OP "Description of OP Units -- units. Units has the right to Transfers and Withdrawals" transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-81 5636 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-82 5637 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-83 5638 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-84 5639 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-85 5640 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-86 5641 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-87 5642 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-88 5643 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-89 5644 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-90 5645 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-91 5646 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $28,641 in 1996, $25,249 in 1997 and $26,283 in 1998. The property manager received management fees of $47,212 in 1996, $23,711 in 1997 and $48,678 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-92 5647 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $94,656 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-93 5648 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. S-94 5649 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows -- for the nine months ended September 30, 1998 and 1997 (unaudited)............. F-4 Note A -- Basis of Presentation............................. F-5 Balance Sheet as of December 31, 1997 and 1996 (unaudited)............................................... F-7 Statements of Operations -- for the years ended December 31, 1997 and 1996 (unaudited)................................. F-8 Statements of Cash Flows -- for the years ended December 31, 1997 and 1996 (unaudited)................................. F-9 Notes to Financial Statements............................... F-10
F-1 5650 WALKER SPRINGS, LIMITED PARTNERSHIP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 131,987 Other assets................................................ 249,539 Investment property Land...................................................... $ 134,400 Building and related personal property.................... 4,447,913 ----------- 4,582,313 Less: Accumulated depreciation............................ (2,882,066) 1,700,247 ----------- ---------- Total assets...................................... $2,081,773 ========== LIABILITIES AND PARTNERS' CAPITAL Other accrued liabilities................................... $ 58,739 Notes payable............................................... 2,509,993 Partners' deficit................................. (486,959) ---------- Total liabilities and partners' deficit........... $2,081,773 ==========
See accompanying note. F-2 5651 WALKER SPRINGS, LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 -------- -------- Revenues: Rental income............................................. $676,237 $645,172 Other income.............................................. 43,108 39,823 -------- -------- Total revenues.................................... 719,345 684,995 Expenses: Operating expenses........................................ 447,081 366,346 Depreciation expense...................................... 150,023 149,835 Interest expense.......................................... 175,236 179,742 Property tax expense...................................... 37,031 42,551 -------- -------- Total expenses.................................... 809,371 738,474 Net income........................................ $(90,026) $(53,479) ======== ========
See accompanying note. F-3 5652 WALKER SPRINGS, LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 -------- -------- Operating activities: Net income................................................ $(90,026) $(53,479) Adjustments to reconcile net income (loss) to net cash provided by operating activities....................... Depreciation and amortization............................. 150,023 149,835 Changes in accounts: Receivables and deposits and other assets.............. 9,859 6,823 Accounts payable and accrued expenses.................. (15,269) (2,079) -------- -------- Net cash provided by (used in) operating activities...................................... 54,587 101,100 -------- -------- Investing activities: Property improvements and replacements...................... (63,566) (82,284) -------- -------- Net cash provided by (used in) investing activities......... (63,566) (82,284) -------- -------- Financing activities: Payments on mortgage...................................... (47,657) (41,478) Partners' distributions................................... 310 2,644 Net cash provided by (used in) financing activities....... (47,347) (38,834) -------- -------- Net increase (decrease) in cash and cash equivalents...... (56,326) (20,018) Cash and cash equivalents at beginning of year............ 188,313 133,047 -------- -------- Cash and cash equivalents at end of period................ $131,987 $113,029 ======== ========
See accompanying note. F-4 5653 WALKER SPRINGS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Walker Springs, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 5654 WALKER SPRINGS, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) F-6 5655 WALKER SPRINGS, LIMITED BALANCE SHEET (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 101,015 $ 116,072 Receivables and deposits.................................... 87,298 75,754 Restricted escrows (Note B)................................. 177,053 169,775 Other assets................................................ 82,345 91,862 Investment properties (Note C): Land...................................................... 134,400 134,400 Buildings and related personal property................... 4,384,656 4,301,436 ----------- ----------- 4,519,056 4,435,836 Less accumulated depreciation............................. (2,732,352) (2,530,702) ----------- ----------- 1,786,704 1,905,134 ----------- ----------- $ 2,234,415 $ 2,358,597 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 34,579 $ 18,542 Tenant security deposit liabilities....................... 18,325 16,975 Other liabilities......................................... 21,104 19,418 Mortgage notes payable (Note C)........................... 2,557,650 2,614,245 Partners' deficit........................................... (397,243) (310,583) ----------- ----------- $ 2,234,415 $ 2,358,597 =========== ===========
See Accompanying Notes to Financial Statements F-7 5656 WALKER SPRINGS, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT (UNAUDITED)
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Revenues: Rental income............................................. $ 899,815 $ 877,481 Other income.............................................. 49,016 73,640 ---------- ---------- Total revenues.................................... 948,831 951,121 ---------- ---------- Expenses: Operating (Note D)........................................ 507,200 479,494 General and administrative (Note D)....................... 30,488 31,692 Depreciation.............................................. 201,650 196,520 Interest.................................................. 241,853 246,583 Property taxes............................................ 54,300 54,195 ---------- ---------- Total expenses.................................... 1,035,491 1,008,484 ---------- ---------- Net loss.................................................... (86,660) (57,363) Partners' deficit at beginning of year...................... (310,583) (253,220) ---------- ---------- Partners' deficit at end of year............................ $ (387,243) $ (310,583) ========== ==========
See Accompanying Notes to Financial Statements F-8 5657 WALKER SPRINGS, LIMITED STATEMENT OF CASH FLOWS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(86,660) $(57,363) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 201,650 196,520 Amortization of discounts and loan costs............... 35,584 34,692 Change in accounts: Receivables and deposits............................. (11,544) 20,820 Other assets......................................... (5,589) -- Accounts payable..................................... 16,037 6,052 Tenant security deposit liabilities.................. 1,350 (1,000) Other liabilities.................................... 1,686 300 -------- -------- Net cash provided by operating activities......... 152,514 200,021 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (83,220) (95,017) Net deposits to restricted escrows........................ (7,278) 11,381 -------- -------- Net cash used in investing activities............. (90,498) (83,636) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (77,073) (71,450) -------- -------- Net cash used in financing activities............. (77,073) (71,450) -------- -------- Net (decrease) increase in cash and cash equivalents........ (15,057) 44,935 Cash and cash equivalents at beginning of year.............. 116,072 71,137 -------- -------- Cash and cash equivalents at end of year.................... $101,015 $116,072 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $206,269 $211,891 ======== ========
See Accompanying Notes to Financial Statements F-9 5658 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Walker Springs, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 13, 1982. The Partnership owns and operates a 168 unit apartment complex, Walker Springs Apartments, in Knoxville, Tennessee. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $74,257 and $89,362, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-10 5659 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $177,053 and $169,775, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $23,040, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,581,827 $2,658,900 Second mortgage note payable in interest only monthly installments of $572, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 90,284 90,284 ---------- ---------- Principal balance at year end............................... 2,672,111 2,749,184 Less unamortized discount................................... (114,461) (134,939) ---------- ---------- $2,557,650 $2,614,245 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 83,139 1999..................................................... 89,683 2000..................................................... 96,741 2001..................................................... 104,355 2002..................................................... 2,298,193 ---------- $2,672,111 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. F-11 5660 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee................................... $47,212 $46,478 Partnership administration fee................... $ 5,500 $ 6,000 Reimbursement for services of affiliates......... $19,749 $20,519 Construction oversight costs..................... $ -- $ 2,122
F-12 5661 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP P-1 5662 Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for P-2 5663 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country P-3 5664 Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 5665 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 5666 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
P-6 5667 This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The P-7 5668 combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 5669 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 5670 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 5671 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; P-11 5672 (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of P-12 5673 $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. P-13 5674 (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro P-14 5675 forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 5676 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 5677 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 5678 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 5679 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 5680 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 5681 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 5682 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 5683 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 5684 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 5685 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 5686 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 5687 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 5688
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 5689 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 5690
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 5691 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5692 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5693 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5694
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5695 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5696 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5697 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5698
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5699 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5700 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5701 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-41 5702 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-42 5703 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
(C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. P-43 5704 (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
(J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-44 5705 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-45 5706 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-46 5707 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-47 5708 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5709 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: WALKER SPRINGS, LIMITED PARTNERSHIP Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of WALKER SPRINGS, LIMITED PARTNERSHIP (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $7,971 in cash, or 206.25 Common OP Units of the Purchaser, or 319 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5710 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP A-2 5711 Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5712 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar.
B-1 5713
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's
B-2 5714
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
B-3 5715
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries.
B-4 5716
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5717 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5718 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Wingfield Investors Limited Partnership in exchange for your choice of: 572.75 of our 8.0% Class Two Partnership Preferred Units; 370.25 of our Partnership Common Units; or $14,318 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $14,318 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5719 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Wingfield Investors Limited Partnership.............. S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25
PAGE ----- Litigation Associated with Partnership Acquisitions............................. S-25 Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-39 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-45 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-53 Terms of the Offer; Expiration Date.......... S-53 Acceptance for Payment and Payment for Units...................................... S-53 Procedure for Tendering Units................ S-54 Withdrawal Rights............................ S-57
i 5720
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-57 Proration.................................... S-58 Fractional OP Units.......................... S-58 Future Plans of the AIMCO Operating Partnership................................ S-58 Voting by the AIMCO Operating Partnership.... S-59 Dissenters' Rights........................... S-59 Conditions of the Offer...................... S-59 Effects of the Offer......................... S-62 Certain Legal Matters........................ S-62 Fees and Expenses............................ S-64 Accounting Treatment......................... S-64 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-65 Tax Consequences of Exchanging Units Solely for OP Units............................... S-65 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-66 Tax Consequences of Exchanging Units Solely for Cash................................... S-66 Disguised Sale Treatment..................... S-66 Adjusted Tax Basis........................... S-67 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-67 Passive Activity Losses...................... S-67 Tax Reporting................................ S-68 Foreign Offerees............................. S-68 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-68 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-70 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-83 General...................................... S-83 Ranking...................................... S-83
PAGE ----- Distributions................................ S-83 Allocation................................... S-84 Liquidation Preference....................... S-84 Redemption................................... S-85 Voting Rights................................ S-85 Restrictions on Transfer..................... S-86 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-86 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-88 CONFLICTS OF INTEREST.......................... S-92 Conflicts of Interest with Respect to the Offer...................................... S-92 Conflicts of Interest that Currently Exist for Your Partnership....................... S-92 Competition Among Properties................. S-92 Features Discouraging Potential Takeovers.... S-92 Future Exchange Offers....................... S-92 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-93 LEGAL MATTERS.................................. S-94 EXPERTS........................................ S-94 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5721 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, United Investors Real Estate Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,389,000, less approximately $110,250 of deferred maintenance. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 5722 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5723 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2020 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $1,145.50 per year on the number of Preferred OP Units, or distributions of $925.63 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 5724 partnership's units. During 1998, your partnership paid cash distributions of $1,188 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 5725 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. S-5 5726 On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October 2003. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. S-6 5727 - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $1,188 per unit for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,145.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,188 per unit for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $925.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. S-7 5728 - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 5729 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 356,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of your partnership property................ $ 3,389,000 Plus: Cash and cash equivalents............................. 96,654 Plus: Other partnership assets, net of security deposits.... 138,138 Less: Mortgage debt, including accrued interest............. (2,533,335) Less: Accounts payable and accrued expenses................. (54,020) Less: Other liabilities..................................... (25,546) ----------- Partnership valuation before taxes and certain costs........ 1,010,891 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (110,250) Less: Closing costs......................................... (84,725) ----------- Estimated net valuation of your partnership................. 815,916 Percentage of estimated net valuation allocated to holders of units.................................................. 87.74% ----------- Estimated net valuation of units............................ 715,916 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 14,318 =========== Cash consideration per unit................................. $ 14,318 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $14,318 by the $25 liquidation preference of each Preferred OP Unit to get 572.75 Preferred OP Units per unit. S-9 5730 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $14,318 by a price of $38.69 to get 370.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $14,318 Partnership Preferred Units................................. $14,318 Partnership Common Units.................................... $14,318 Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $14,318 Estimated going concern value............................. $12,133 Net book value (deficit).................................. $(3,879)
STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and S-10 5731 qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Wingfield Investors Limited Partnership is a Kansas limited partnership which was formed on January 25, 1990 for the purpose of owning and operating a single property located in Olathe, Kansas, known as "Wingfield Apartments." Your partnership property consists of 131 units and was built in 1982. Your partnership has no employees. As of September 30, 1998, there were 50 units of limited partnership interest issued and outstanding, which were held of record by 42 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,010,350 of limited partnership units in 1990. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $5,984.94 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2020, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,339,518, payable to FNMA, which bears interest at the rate of 7.83%. The mortgage debt is due on October 2003. Your partnership also has a second mortgage note outstanding of $79,560, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 5732 THE OFFER In exchange for each of your units, we are offering you a choice of: - 572.75 of our Class Two Partnership Preferred Units; - 370.25 of our Partnership Common Units; or - $14,318 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 50 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 572.75 Preferred OP Units, 370.25 Common OP Units, or $14,318 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 5733 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 5734 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $14,318 in cash, 572.75 Preferred OP Units or 370.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 5735 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $14,318. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $9,860 for the fiscal year ended December 31, 1998. The property manager received management fees of $41,443 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $178,975 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5736 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5737
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5738 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5739
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5740 SUMMARY FINANCIAL INFORMATION OF WINGFIELD INVESTORS LIMITED PARTNERSHIP The summary financial information of Wingfield Investors Limited Partnership for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Wingfield Investors Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." WINGFIELD INVESTORS LIMITED PARTNERSHIP
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- -------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- --------- --------- ---------- -------- -------- OPERATING DATA: Total Revenues........................ $624,446 $598,630 $ 796,920 $ 748,276 $ 695,115 $680,521 $663,050 Net Income/(Loss)..................... 12,568 47,321 17,631 (19,745) (77,467) 2,872 (17,387) Net Income per limited partnership unit................................ 248.85 936.96 349.09 (390.95) (1,533.85) 56.87 (1,688) Distributions per limited partnership unit................................ 891.00 900.00 1,200.00 1,197.00 1,200.00 1,200.00 8,789.30 Distributions per limited partnership unit (which represent a return of capital)............................ -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 95,610 $ 139,059 $ 141,355 $ 213,697 $ 319,742 $ 330,019 310,516 Real Estate, Net of Accumulated Depreciation... 2,004,513 2,060,014 2,039,214 2,045,296 2,117,722 2,162,869 2,238,807 Total Assets................. 2,331,791 2,434,770 2,392,635 2,469,371 2,656,268 2,730,163 2,796,406 Notes Payable................ 2,473,220 2,511,149 2,498,987 2,526,425 2,551,728 2,575,063 2,596,580 General Partners' Capital/ (Deficit).................... (22,720) (21,948) (22,396) (21,966) (21,164) (19,783) (19,206) Limited Partners' Capital/ (Deficit).................... (204,056) (128,154) (171,547) (129,003) (49,607) 87,085 144,242 Partners' Capital/(Deficit).... (226,376) (149,102) (193,943) (150,969) (70,771) 67,302 125,036 Total Distributions............ 45,000 45,454 60,605 60,453 60,606 60,606 443,904 Book value per limited partnership unit............. (4,073.12) (2,543.08) (3,430.94) (2,580.08) (992.14) 1,741.70 -- Net increase (decrease) in cash and cash equivalents......... (43,449) (74,638) (72,342) (106,045) (10,277) 19,503 162,516 Net cash provided by operating activities................... 84,940 90,238 124,000 12,459 144,077 148,758 168 Ratio of earnings to fixed charges...................... 1.08/1 1.32/1 1.08/1 0.91/1 0.65/1 1.01/1 0.91/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO WINGFIELD OPERATING INVESTORS LIMITED PARTNERSHIP PARTNERSHIP ------------ ----------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ----------------- Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $ 925.63 $1,188 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... 1,145.50 1,188
S-20 5741 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 5742 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $3,389,000 less approximately $110,250 of deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-22 5743 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 5744 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2020 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 5745 is equivalent to distributions of $1,145.50 per year on the number of Preferred OP Units, or distributions of $925.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of $1,188 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 5746 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-26 5747 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.00% interest, consisting of a 0% limited partnership interest and a 1.00% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 5748 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 5749 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has decreased from $47,000 for the nine months ended September 30, 1997, to $13,000 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October 2003. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger S-29 5750 would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require the consent of a majority in interest of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. S-30 5751 - Preferred Quarterly Distributions. Your partnership paid distributions of $1,188 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,145.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $1,188 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $925.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true S-31 5752 value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.80% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate resulting in a final capitalization rate of 10.50%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We S-32 5753 divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Wingfield Investors Limited Partnership $355,858 10.50% $3,389,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $792,587, less total expenses of $397,429 and recurring replacement costs of $39,300. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $815,916. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 87.74% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 356,000 Capitalization rate......................................... 10.50% ----------- Gross valuation of partnership properties................... 3,389,000 Plus: Cash and cash equivalents............................. 96,654 Plus: Other partnership assets, net of security deposits.... 138,138 Less: Mortgage debt, including accrued interest............. (2,533,335) Less: Accounts payable and accrued expenses................. (54,020) Less: Other liabilities..................................... (25,546) ----------- Partnership valuation before taxes and certain costs........ 1,010,891 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures for deferred maintenance............................................... (110,250) Less: Closing costs......................................... (84,725) ----------- Estimated net valuation of your partnership................. 815,916 Percentage of estimated net valuation allocated to holders of units.................................................. 87.74% ----------- Estimated net valuation of units............................ 715,916 Total number of units............................. 50.0 ----------- Estimated valuation per unit................................ 14,318 =========== Cash consideration per unit................................. 14,318 ===========
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $14,318 by the $25 liquidation preference of each Preferred OP Unit to get 572.75 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $14,318 by a price of $38.69 to get 370.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-33 5754 The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $815,916 or 0.14% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $47,000 for the nine months ended September 30, 1997 to $13,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. S-34 5755 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $14,318, based on a total estimated value of your partnership's property of $3,389,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $1,145.50 per year on the number of Preferred OP Units, or distributions of $925.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $1,188. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your S-35 5756 units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 5757 Under your partnership's agreement of limited partnership, the term of the partnership will continue until 2020, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $14,318 Partnership preferred units................................. 14,318(1) Partnership common units.................................... 14,318(1) Alternatives: Not Prices on secondary market................................ available Estimated liquidation proceeds............................ $14,318 Estimated going concern value............................. $12,133 Net book value (deficit).................................. $(3,879)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. S-37 5758 Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $12,133 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $193,943 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $15,366 per unit, going concern value of $11,442 per unit and liquidation value of $13,688 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value S-38 5759 per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $1,048, $(2,876) and $(630). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 87.74% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. S-39 5760 Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $ 832,817 Operating Expenses.......................................... (434,424) Replacement Reserves -- Net................................. (51,482) Debt Service................................................ (231,830) Capital Expenditures........................................ (42,240) --------- Net Cash Flow..................................... $ 72,841 =========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. S-40 5761 In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.5%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $110,250. Stanger observed that your partnership liquidation value of $815,916 was allocated 87.74% to the limited partners and divided by the total units outstanding of 50 to provide the liquidation value per unit of $14,318. S-41 5762 Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $356,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $30,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.0%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.0%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 50 to achieve management's estimate of going concern value of $12,133 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $14,318 per unit is equal to management's estimate of liquidation value, and reflects a 18% premium to management's estimate of going concern value of $12,133. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year after the close of this transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that ten day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.0%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.5%. Stanger utilized deferred maintenance S-42 5763 estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.5% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 75% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $15,366, $11,442, and $13,688 representing premiums (discounts) to the offer price of 7%, (20)% and (4.4)%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with S-43 5764 respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-44 5765 YOUR PARTNERSHIP GENERAL Wingfield Investors Limited Partnership, is a Kansas limited partnership which completed a private offering in 1990. Insignia acquired the general partner of your partnership in 1990. AIMCO acquired Insignia in October 1998. There are currently a total of 42 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 25, 1990 for the purpose of owning an apartment property located in Olate, Kansas, known as "Wingfield Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1982 and consists of 131 apartment units. Your partnership's property had an average occupancy rate of approximately 96.06% in 1998, 96.95% in 1997 and 96.95% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $110,250 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, stairwells, and balconies. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $468 $445 $425 $414 $407
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $53,149 of $461,599 of assessed valuation with a current yearly tax rate of 11.51%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 11.74% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2020 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-45 5766 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $495, respectively, at December 31, 1998, compared to 97% and $468, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects this trend to continue in the near future because of improving rental market. In addition, the general partner noted that it expects to spend approximately $110,250 for capital improvements at the property in 1999 to repair the property's roof, stairwells and balconies. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospectus. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,339,518, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due on October 2003. Your partnership also has a second mortgage note outstanding of $79,560, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend S-46 5767 funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,010,350 of limited partnership units in 1990 for $20,207 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 2020, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the doing of any act or the failure to do any act by the general partner, which does not constitute fraud, gross negligence or willful malfeasance as determined by a court of competent jurisdiction, pursuant to the authority granted to it to promote the interests of your partnership, the effect of which causes or results in loss or damage to your partnership, if done in good faith, will not subject the general partner or its affiliates to any liability. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will also indemnify and hold harmless the general partners and their affiliates from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith which do not constitute fraud, gross negligence or willful malfeasance as determined by a court of competent jurisdiction pursuant to the authority granted to it to promote the interests of your partnership, including, without limitation, reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. All costs and expenses incurred in defending any proceeding or action or otherwise will be advanced by your partnership. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-47 5768 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $19,850.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 1,212 606 0 15,000 1995................................... 1,212 606 0 15,000 1996................................... 1,209 605 0 14,962 1997................................... 1,212 606 0 15,000 1998................................... 1,200 600 0 14,850 Total........................ $6,045 $3,023 $0 $74,812
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that no units have been transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1.0% interest in your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-48 5769 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $10,000 1995........................................................ 15,000 1996........................................................ 15,756 1997........................................................ 15,852 1998........................................................ 9,860
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $34,189 1995........................................................ 35,097 1996........................................................ 36,670 1997........................................................ 39,358 1998........................................................ 41,443
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 5770 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
WINGFIELD INVESTORS LIMITED PARTNERSHIP --------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, -------------------------- ---------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------- ---------- ------------ ---------- ---------- ---------- ---------- Cash and Cash Equivalents................ $ 95,610 $ 139,059 $ 141,355 $ 213,697 $ 319,742 $ 330,019 $ 310,516 Land & Building.............. 2,870,035 2,819,732 2,825,382 2,725,659 2,698,040 2,638,610 2,613,623 Accumulated Depreciation..... (865,522) (759,718) (786,168) (680,363) (580,318) (475,741) (374,816) Other Assets................. 231,667 235,697 212,066 210,378 218,804 237,275 247,083 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets......... $2,331,790 $2,434,770 $2,392,635 $2,469,371 $2,656,268 $2,730,163 $2,796,406 ========== ========== ========== ========== ========== ========== ========== Notes Payable.............. $2,473,220 $2,511,149 $2,498,987 $2,526,425 $2,551,728 $2,575,063 2,596,580 Other Liabilities............ 84,946 72,723 87,591 93,915 200,614 87,798 74,790 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.... $2,558,166 $2,583,872 $2,586,578 $2,620,340 $2,727,039 $2,662,861 $2,671,370 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit)................ $ (226,376) $ (149,102) $ (193,943) $ (150,969) $ (70,771) $ 67,302 $ 125,036 ========== ========== ========== ========== ========== ========== ==========
WINGFIELD INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------------- -------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------- ---------- ------------ ---------- ---------- ---------- -------------- Rental Revenue........... $ 579,408 $ 548,407 $ 735,927 $ 698,941 $ 668,454 $ 651,491 $ 639,690 Other Income............. 45,038 50,223 60,993 49,335 45,445 41,468 28,628 ---------- ---------- ---------- ---------- ---------- ---------- -------------- Total Revenues... $ 624,446 $ 598,630 $ 796,920 $ 748,276 $ 713,899 $ 692,959 $ 668,318 ---------- ---------- ---------- ---------- ---------- ---------- -------------- Operating Expenses....... $ 331,862 $ 265,332 $ 380,613 $ 368,500 $ 364,948 $ 294,965 $ 283,002 General & Administrative......... 12,168 12,567 24,336 24,110 42,953 37,653 70,973 Depreciation............. 79,355 79,355 105,805 100,045 107,117 100,925 95,897 Interest Expense......... 148,105 150,039 217,248 219,473 221,263 210,229 190,787 Property Taxes........... 40,388 44,016 51,287 55,893 55,085 46,315 45,046 ---------- ---------- ---------- ---------- ---------- ---------- -------------- Total Expenses... $ 611,878 $ 551,309 $ 779,289 $ 768,021 $ 791,366 $ 690,087 $ 685,705 ---------- ---------- ---------- ---------- ---------- ---------- -------------- Net Income (loss) before extraordinary items................ $ 12,568 $ 47,321 $ 17,631 $ (19,745) $ (77,467) $ 2,872 $ (17,387) Extraordinary Items...... -- -- -- -- -- -- (67,883) ---------- ---------- ---------- ---------- ---------- ---------- -------------- Net Income (loss)...... $ 12,568 $ 47,321 $ 17,631 $ (19,745) $ (77,467) $ 2,872 $ (85,270) ========== ========== ========== ========== ========== ========== ============== Net Income (loss) per limited partnership unit................. $ 248.85 $ 936.96 $ 349.09 $ (390.95) $(1,533.85) $ 56.87 $ (1,688) ========== ========== ========== ========== ========== ========== ============== Distributions per limited partnership unit....... $ 891.00 $ 900.00 $ 1,200.00 $ 1,197.00 $ 1,200.00 $ 1,200.00 $ 8,789.30 ========== ========== ========== ========== ========== ========== ==============
S-50 5771 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $13,000 for the nine months ended September 30, 1998, compared to $47,000 for the nine months ended September 30, 1997. The decrease in net income of $34,000 was the result of an increase in operating and other expenses, partially off-set by an increase in revenues. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $624,000 for the nine months ended September 30, 1998, compared to $599,000 for the nine months ended September 30, 1997, an increase of $25,000, or 4.2%. This increase is due primarily to a 4% increase in rental rates, while occupancy remained stable at 94%. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $332,000 for the nine months ended September 30, 1998, compared to $265,000 for the nine months ended September 30, 1997, an increase of $67,000, due primarily to higher maintenance costs, specifically parking lot repairs and landscaping and yard maintenance. Partnership Property management expenses totaled $31,000 for the nine months ended September 30, 1998, compared to $29,000 for the nine months ended September 30, 1997, an increase of $2,000. This increase was primarily the result of the increase in rental revenues, as management fees are calculated based on a percentage of revenue. INTEREST EXPENSE Interest expense decreased $2,000 to $148,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This decrease is due to a lower mortgage indebtedness, resulting from principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $17,631 for the year ended December 31,1997, compared to a net loss of $19,745 for the year ended December 31, 1996. The increase in net income of $37,376 or 189.29% was primarily the result of an increase in revenues detailed in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $796,920 for the year ended December 31, 1997, compared to $748,276 for the year ended December 31, 1996, an increase of $48,644, or 6.50% due to increased rental rates. S-51 5772 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $380,613 for the year ended December 31,1997 compared to $368,500 for the year ended December 31, 1996, an increase of $12,113 or 3.29%. Management expenses totaled $39,358 for the year ended December 31, 1997, compared to $36,670 for the year ended December 31, 1996, an increase of $2,688, or 7.33%. This resulted from increased revenues, which the fee is based upon. General and Administrative Expenses General and administrative expenses totaled $24,336 for the year ended December 31, 1997 compared to $24,110 for the year ended December 31, 1996, an increase of $226 or 0.94%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $217,248 for the year ended December 31, 1997, compared to $219,473 for the year ended December 31,1996, a decrease of $2,225, or 1.01%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $19,745 for the year ended December 31,1996, compared to a net loss of $77,467 for the year ended December 31, 1995. The increase of $57,722, or 74.51% was primarily the result of increased revenues coupled with a slight decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $748,276 for the year ended December 31, 1996, compared to $713,899 for the year ended December 31, 1995, an increase of $34,377, or 4.82%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $368,500 for the year ended December 31,1996 compared to $364,948 for the year ended December 31, 1995, an increase of $3,552 or 0.97%. Management expenses totaled $36,670 for the year ended December 31, 1996, compared to $35,097 for the year ended December 31, 1995, an increase of $1,573, or 4.48%. General and Administrative Expenses General and administrative expenses totaled $24,110 for the year ended December 31, 1996 compared to $42,953 for the year ended December 31, 1995, a decrease of $18,843 or 43.87%. The decrease is primarily due to reclassing on the financial statements of certain accounts from general and administrative to Operating. Grouped the same way as in 1995, 1996 general and administrative expense would be $44,367. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $219,473 for the year ended December 31, 1996, compared to $221,263 for the year ended December 31,1995, a decrease of $1,790, or 0.81%. S-52 5773 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $96,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $2,482,000. The mortgage requires monthly payments of approximately $19,319 until October, 2003 at which time a balloon payment of approximately $2,291,239 will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 7.83%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 5774 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 50 units of your partnership (up to 12.5 units) for consideration per unit of (i) 572.75 Preferred OP Units, (ii) 370.25 Common OP Units, or (iii) $14,318 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 5775 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 5776 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 5777 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 5778 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 5779 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 5780 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 5781 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 5782 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 5783 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 5784 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 5785 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 5786 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 5787 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 5788 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 5789 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 5790 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 5791 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Kansas law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO Cash From Operations (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partner- partnership (the "AIMCO Operating ship). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2020. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire The purpose of the AIMCO Operating and operate your partnership's property for Partnership is to conduct any business that investment. Subject to restrictions may be lawfully conducted by a limited contained in your partnership's agreement of partnership organized pursuant to the limited partnership, your partnership may do Delaware Revised Uniform Limited Part- all things necessary for or incidental to nership Act (as amended from time to time, the protection and benefit of your or any successor to such statute) (the partnership, including, borrowing funds and "Delaware Limited Partnership Act"), creating liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-71 5792 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 50 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The general partner of your partnership may The AIMCO Operating Partnership may lend or not enter into agreements with itself or any contribute funds or other assets to its of its affiliates for services, except as subsidiaries or other persons in which it otherwise specifically has an equity investment,
S-72 5793 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP provided in your partnership's agreement of and such persons may borrow funds from the limited partnership or on a basis no less AIMCO Operating Partnership, on terms and favorable to your partnership than that conditions established in the sole and which could have been arranged with absolute discretion of the general partner. unaffiliated third parties for comparable To the extent consistent with the business goods or services. Your partnership may not purpose of the AIMCO Operating Partnership lend money to the general partner or its and the permitted activities of the general affiliates, but the general partner may lend partner, the AIMCO Operating Partnership may such money to your partnership as the transfer assets to joint ventures, limited general partner, in its sole discretion, liability companies, partnerships, deems necessary for the payment of any corporations, business trusts or other partnership obligations and expenses. Such business entities in which it is or thereby loans will be repaid with interest at rate becomes a participant upon such terms and of 1% per annum over the then prevailing subject to such conditions consistent with prime rate of United Missouri Bank of Kansas the AIMCO Operating Partnership Agreement City, N.A., but in no event to exceed the and applicable law as the general partner, maximum rate, from the first available funds in its sole and absolute discretion, of your partnership and prior to believes to be advisable. Except as distributions to the limited partners, only expressly permitted by the AIMCO Operating from available funds; provided, however, Partnership Agreement, neither the general that the general partner must first make partner nor any of its affiliates may sell, reasonable efforts to obtain loans at the transfer or convey any property to the AIMCO most favorable rates from unaffiliated Operating Partnership, directly or persons. indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to enter into and execute, on contains no restrictions on borrowings, and behalf of your partnership, all agreement, the general partner has full power and contracts, instruments and related documents authority to borrow money on behalf of the in connection with the acquisition, AIMCO Operating Partnership. The AIMCO ownership, financing, management, Operating Partnership has credit agreements maintenance, operation and sale of your that restrict, among other things, its partnership's property by your partnership, ability to incur indebtedness. on such terms as the general partner, in its reasonable discretion, deems to be in the best interests of your partnership.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representative to purpose of such demand and at such OP inspect and copy the books and records of Unitholder's own expense, to obtain a your partnership, including a current list current list of the name and last known of the full name and last known business business, residence or mailing address of address of each partner set forth in the general partner and each other OP alphabetical order, upon reasonable notice Unitholder. during business hours at the principal place of business of your partnership or such other place or places as may be determined by the general partner from time to time. In addition, a limited partner or its duly authorized representative has the right to receive by mail, upon written required to your partnership at such limited partner's sole cost and expense, a copy of a list of names and addresses of the limited partners and the number of
S-73 5794 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP units owned by each of them. However, no limited partner has the right to sell or disclose such list to any other person or to use such list for commercial purposes of any purpose unrelated to the business of your partnership.
Management Control The general partner of your partnership has All management powers over the business and full, exclusive and complete discretion in affairs of the AIMCO Operating Partnership the management of your partnership's are vested in AIMCO-GP, Inc., which is the business and has all rights and powers general partner. No OP Unitholder has any generally conferred by law or necessary, right to participate in or exercise control advisable or consistent in connection or management power over the business and therewith. The general partner must perform affairs of the AIMCO Operating Partner- such reasonable acts as may be consistent ship. The OP Unitholders have the right to with good business practices in its vote on certain matters described under performance as general partner. No limited "Comparison of Your Units and AIMCO OP partner may take part in or interfere in any Units -- Voting Rights" below. The general manner with the conduct or control of the partner may not be removed by the OP business of your partnership and no limited Unitholders with or without cause. partner has the right or authority to act for or bind your partnership. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the doing of any act or forth in the AIMCO Operating Partnership the failure to do any act by the general Agreement, the general partner is not liable partner, which does not constitute fraud, to the AIMCO Operating Partnership for gross negligence or willful malfeasance as losses sustained, liabilities in-
S-74 5795 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP determined a court of competent curred or benefits not derived as a result jurisdiction, pursuant to the authority of errors in judgment or mistakes of fact or granted to it to promote the interests of law of any act or omission if the general your partnership, the effect of which causes partner acted in good faith. The AIMCO or results in loss or damage to your Operating Partnership Agreement provides for partnership, if done in good faith, will not indemnification of AIMCO, or any director or subject the general partner or its officer of AIMCO (in its capacity as the affiliates to any liability. In addition, previous general partner of the AIMCO your partnership will also indemnify and Operating Partnership), the general partner, hold harmless the general partners and their any officer or director of general partner affiliates from any claim, loss, expense, or the AIMCO Operating Partnership and such liability, action or damage resulting from other persons as the general partner may any act or omission done in good faith which designate from and against all losses, do not constitute fraud, gross negligence or claims, damages, liabilities, joint or willful malfeasance as determined by a court several, expenses (including legal fees), of competent jurisdiction, pursuant to the fines, settlements and other amounts authority granted to them to promote the incurred in connection with any actions interests of your partnership, including, relating to the operations of the AIMCO without limitation, reasonable fees and Operating Partnership, as set forth in the expenses of attorneys engaged by the general AIMCO Operating Partnership Agreement. The partner in defense of such act or omission Delaware Limited Partnership Act provides and other reasonable costs and expenses of that subject to the standards and litigation and appeal. All costs and restrictions, if any, set forth in its expenses incurred in defending any partnership agreement, a limited partnership proceeding or action or otherwise will be may, and shall have the power to, indemnify advanced by your partnership. and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, after notice to the partner has exclusive management power over general partner, the limited partners may the business and affairs of the AIMCO remove such general partner upon a vote of Operating Partnership. The general partner the limited partners holding a majority of may not be removed as general partner of the the outstanding units. A general partner may AIMCO Operating Partnership by the OP resign at any time provided that such Unitholders with or without cause. Under the resignation is accepted by the limited AIMCO Operating Partnership Agreement, the partners owning more than 50% of the general partner may, in its sole discretion, outstanding units and sixty days prior to prevent a transferee of an OP Unit from the effective date of such resignation such becoming a substituted limited partner general partner nominates as a substitute pursuant to the AIMCO Operating Partnership general partner a willing person or entity Agreement. The general partner may exercise who meets the requirements of the tax laws. this right of approval to deter, delay or A general partner may be admitted only with hamper attempts by persons to acquire a the consent of the general partner, if any, controlling interest in the AIMCO Operating and a majority-in-interest of the limited Partnership. Additionally, the AIMCO partners. A limited partner may not transfer Operating Partnership Agreement contains its units without the consent of the general restrictions on the ability of OP partner. Unitholders to transfer their OP Units. See
S-75 5796 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Approval by a majority of the then With the exception of certain circumstances outstanding limited partnership interests is set forth in the AIMCO Operating Partnership necessary to effect an amendment to your Agreement, whereby the general partner may, partnership's agreement of limited without the consent of the OP Unitholders, partnership. Amendments may be proposed by amend the AIMCO Operating Partnership the general partner or by limited partners Agreement, amendments to the AIMCO Operating holding 10% or more of the then outstanding Partnership Agreement require the consent of units. However, the general partner may the holders of a majority of the outstanding amend your partnership's agreement of Common OP Units, excluding AIMCO and certain limited partnership from time to time to other limited exclusions (a "Majority in effect changes of a ministerial nature which Interest"). Amendments to the AIMCO do not materially and adversely affect the Operating Partnership Agreement may be rights of the limited partners, as required proposed by the general partner or by by law, to add to the representations, holders of a Majority in Interest. Following duties or obligations of the general partner such proposal, the general partner will or surrender any right or power granted to submit any proposed amendment to the OP the general partner under your partnership's Unitholders. The general partner will seek agreement of limited partnership for the the written consent of the OP Unitholders on benefit of the limited partners, to cure any the proposed amendment or will call a ambiguity and to correct or supplement any meeting to vote thereon. See "Description of provision in your partnership's agreement of OP Units -- Amendment of the AIMCO Operating limited partnership which may be Partnership Agreement" in the accompanying inconsistent with any other provision. Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner but may receive fees for additional Operating Partnership. In addition, the services. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors No limited partner, unless it is deemed to Except for fraud, willful misconduct or be taking part in the control of the gross negligence, no OP Unitholder has business of your partnership, is bound by or personal liability for the AIMCO Operating personally liable for the expenses, Partnership's debts and obligations, and liabilities or obligation of your liability of the OP Unitholders for the partnership. The liability of a limited AIMCO Operating Partnership's debts and partner is limited solely to the amount of obligations is generally limited to the its contribution to the capital of your amount of their investment in the AIMCO partnership, whether or not returned to it, Operating Partnership. However, the together with the undistributed share of the limitations on the liability of limited profits of your
S-76 5797 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership from time to time credited to partners for the obligations of a limited such limited partner's capital account and partnership have not been clearly any money or other property wrongfully paid established in some states. If it were or conveyed to such limited partner on determined that the AIMCO Operating Part- account of its contribution, including but nership had been conducting business in any not limited to money or property to which state without compliance with the applicable creditors were legally entitled, paid or limited partnership statute, or that the conveyed to such limited partner, and under right or the exercise of the right by the certain circumstances, interest on returned holders of OP Units as a group to make capital. certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner of your partnership is Unless otherwise provided for in the not required to devote all of its time or relevant partnership agreement, Delaware law business efforts to the affairs of your generally requires a general partner of a partnership, but must devote so much of its Delaware limited partnership to adhere to time and attention to your partnership as is fiduciary duty standards under which it owes necessary and advisable to successfully its limited partners the highest duties of manage the affairs of your partnership. The good faith, fairness and loyalty and which general partner is not required to manage generally prohibit such general partner from your partnership as its sole and exclusive taking any action or engaging in any function and it may have other business transaction as to which it has a conflict of interests and may engage in other activities interest. The AIMCO Operating Partnership in addition to those relating to your Agreement expressly authorizes the general partnership, including the rendering of partner to enter into, on behalf of the advice or services of any kind to other AIMCO Operating Partnership, a right of investors and the making or management of first opportunity arrangement and other other investors. Neither your partnership conflict avoidance agreements with various nor any partner has rights in or to such affiliates of the AIMCO Operating ventures or activities or to the income or Partnership and the general partner, on such proceeds derived therefrom, and the pursuit terms as the general partner, in its sole of such ventures, even if competitive with and absolute discretion, believes are the business of your partnership, will not advisable. The AIMCO Operating Partnership be deemed wrongful or improper. In addition, Agreement expressly limits the liability of any partner or its affiliates may engage in the general partner by providing that the or possess an interest in other business general partner, and its officers and ventures of every nature and description, directors will not be liable or accountable whether such ventures are competitive with in damages to the AIMCO Operating your partnership or otherwise, including but Partnership, the limited partners or as- not limited to, the acquisition, ownership, signees for errors in judgment or mistakes financing, leasing, operation, management, of fact or law or of any act or omission if syndication, brokerage, sale, construction the general partner or such director or and development of real property, which may officer acted in good faith. See be located in the market area or vicinity of "Description of OP Units -- Fiduciary your partnership's property, and neither Responsibilities" in the accompanying your partnership nor any partners will have Prospectus. any right in or to such independent ventures or to the income or profits derived therefrom. In general, your partnership's agreement of limited partnership and the AIMCO Operating Partnership
S-77 5798 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Agreement have limitations on the liability of the general partner but such limitations differ and provide more protection for the general partner of the AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-78 5799 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting holders of a majority of the Agreement, the holders of rights only with respect to outstanding units is re- the Preferred OP Units will certain limited matters such quired to amend your have the same voting rights as certain amendments and partnership's agreement of as holders of the Common OP termination of the AIMCO limited partnership subject Units. See "Description of Operating Partnership to certain limitations, to OP Units" in the accompany- Agreement and certain terminate your partnership, ing Prospectus. So long as transactions such as the to remove a general partner any Preferred OP Units are institution of bankruptcy and elect a replacement outstanding, in addition to proceedings, an assignment therefore and to approve or any other vote or consent of for the benefit of creditors disapprove the sale at one partners required by law or and certain transfers by the time (or in a series of by the AIMCO Operating general partner of its sales pursuant to a single Partnership Agreement, the interest in the AIMCO plan) of all or affirmative vote or consent Operating Partnership or the substantially all of your of holders of at least 50% admission of a successor partnership's assets except of the outstanding Preferred general partner. sales made in the ordinary OP Units will be necessary course of your partnership's for effecting any amendment Under the AIMCO Operating continuing business. All of any of the provisions of Partnership Agreement, the such actions, except the the Partnership Unit general partner has the removal of a general partner Designation of the Preferred power to effect the requires the concurrence of OP Units that materially and acquisition, sale, transfer, the general partner. adversely affects the rights exchange or other or preferences of the disposition of any assets of A general partner may cause holders of the Preferred OP the AIMCO Operating the dissolution of your Units. The creation Partnership (including, but partnership by retiring not limited to, the exercise unless, within ninety days, or the remaining general part-
S-79 5800 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ner agrees to continue the or issuance of any class or grant of any conversion, business of the partnership. series of partnership units, option, privilege or If there are no remaining including, without subscription right or any general partners, all of the limitation, any partner- other right available in limited partners may agree ship units that may have connection with any assets to continue the business and rights senior or superior to at any time held by the elect a successor general the Preferred OP Units, AIMCO Operating Partnership) partner by a shall not be deemed to or the merger, majority-in-interest vote materially adversely affect consolidation, within 90 days of the the rights or preferences of reorganization or other resignation. the holders of Preferred OP combination of the AIMCO Units. With respect to the Operating Partnership with In general, you have greater exercise of the above or into another entity, all voting rights in your described voting rights, without the consent of the partnership than you will each Preferred OP Units OP Unitholders. have as an OP Unitholder. OP shall have one (1) vote per Unitholders can not remove Preferred OP Unit. The general partner may the general partner of the cause the dissolution of the AIMCO Operating Partnership. AIMCO Operating Partnership by an "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating among the partners. The quarterly cash distributions
S-80 5801 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS distributions payable to the at the rate of $0.50 per Partnership to distribute partners are not fixed in Preferred OP Unit; provided, quarterly all, or such amount and depend upon the however, that at any time portion as the general operating results and net and from time to time on or partner may in its sole and sales or refinancing pro- after the fifth anniversary absolute discretion ceeds available from the of the issue date of the determine, of Available Cash disposition of your Preferred OP Units, the (as defined in the AIMCO partnership's assets. AIMCO Operating Partnership Operating Partnership may adjust the annual Agreement) generated by the distribution rate on the AIMCO Operating Partnership Preferred OP Units to the during such quarter to the lower of (i) 2.00% plus the general partner, the special annual interest rate then limited partner and the applicable to U.S. Treasury holders of Common OP Units notes with a maturity of on the record date es- five years, and (ii) the tablished by the general annual dividend rate on the partner with respect to such most recently issued AIMCO quarter, in accordance with non-convertible preferred their respective interests stock which ranks on a in the AIMCO Operating parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for and no other distribution of cash or other property
S-81 5802 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS may be declared or made, qualifying as a REIT under directly or indirectly, by the Code and the Treasury the AIMCO Operating Regulations and (ii) avoid Partnership with respect to any Federal income or excise any Junior Units (as de- tax liability of AIMCO. See fined below), nor shall any "Description of OP Junior Units be redeemed, Units -- Distributions" in purchased or otherwise the accompanying Prospectus. acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his limited for the Preferred OP Units for the OP Units. The AIMCO partnership interest to any and the Preferred OP Units Operating Partnership person provided that: (i) are not listed on any Agreement restricts the such transfer is not in securities exchange. The transferability of the OP contravention of your Preferred OP Units are Units. Until the expiration partnership's agreement of subject to restrictions on of one year from the date on limited partnership, (ii) a transfer as set forth in the which an OP Unitholder duly executed and ac- AIMCO Operating Partnership acquired OP Units, subject knowledged assignment has Agreement. to certain exceptions, such been approved by the general OP Unitholder may not partner, which approval will Pursuant to the AIMCO transfer all or any por- be in its sole discretion Operating Partnership tion of its OP Units to any and absolute power, and Agreement, until the transferee without the (iii) the transferee expiration of one year from consent of the general represents in writing that the date on which a holder partner, which consent may it satisfies the suit- of Preferred OP Units be withheld in its sole and ability requirements for acquired Preferred OP Units, absolute discretion. After limited partners. However, subject to certain the expiration of one year, no transfer may occur if in exceptions, such holder of such OP Unitholder has the light of the total of all Preferred OP Units may not right to transfer all or any transfers sold or exchanged transfer all or any portion portion of its OP Units to within the period of twelve of its Preferred OP Units to any person, subject to the consecutive months prior any transferee without the satisfaction of certain con- there, there might result a consent of the general ditions specified in the termination of your partner, which consent may AIMCO Operating Partnership partnership for tax purposes be withheld in its sole and Agreement, including the in the opinion of counsel. absolute discretion. After general partner's right of In order for a transferee to the expiration of one year, first refusal. See be substituted as a limited such holders of Preferred OP "Description of OP Units -- partner, in addition to the Units has the right to Transfers and Withdrawals" above requirements: (1) the transfer all or any portion in the accompanying assignee must execute an of its Preferred OP Units to Prospectus. irrevocable power of any person, subject to the attorney appointing the satisfaction of certain After the first anniversary general partner as the conditions specified in the of becoming a holder of assignee's attorney-in-fact, AIMCO Operating Partner- Common OP Units, an OP (2) an opinion of counsel ship Agreement, including Unitholder has the right, must be received by the the general partner's right subject to the terms and general partner that such of first refusal. conditions of the AIMCO transfer does not violate Operating Partnership applicable securities laws, After a one-year holding Agreement, to require the (3) a transfer fee must be period, a AIMCO Operating paid, (4) the interest transferred must not be
S-82 5803 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS less than one unit or such holder may redeem Preferred Partnership to redeem all or lesser amount as the OP Units and receive in a portion of the Common OP assignor owned and (5) such exchange therefor, at the Units held by such party in other conditions as are set AIMCO Operating exchange for a cash amount forth in your partnership's Partnership's option, (i) based on the value of shares agreement of limited subject to the terms of any of Class A Common Stock. See partnership must be Senior Units (as defined "Description of OP fulfilled. below), cash in an amount Units -- Redemption Rights" equal to the Liquidation in the accompanying There are no redemption Preference of the Preferred Prospectus. Upon receipt of rights associated with your OP Units tendered for a notice of redemption, the units. redemption, (ii) a number of AIMCO Operating Partnership shares of Class A Common may, in its sole and Stock of AIMCO that is equal absolute discretion but in Value to the Liquidation subject to the restrictions Preference of the Preferred on the ownership of Class A OP Units tendered for Common Stock imposed under redemption, or (iii) for AIMCO's charter and the Preferred OP Units redeemed transfer restrictions and after a two-year holding other limitations thereof, period, a number of shares elect to cause AIMCO to of Class I Preferred Stock acquire some or all of the of AIMCO that pay an tendered Common OP Units in aggregate amount of exchange for Class A Common dividends equivalent to the Stock, based on an exchange distributions on the ratio of one share of Class Preferred OP Units tendered A Common Stock for each Com- for redemption; provided mon OP Unit, subject to that such shares are part of adjustment as provided in a class or series of the AIMCO Operating preferred stock that is then Partnership Agreement. listed on the NYSE or an- other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 5804 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 5805 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 5806 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 5807 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 5808 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 5809 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 5810 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 5811 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 5812 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 5813 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $15,756 in 1996, $15,852 in 1997 and $9,860 in 1998. The property manager received management fees of $36,670 in 1996, $39,358 in 1997 and $41,443 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 5814 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $178,975 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 5815 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Wingfield Investors Limited Partnership at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in this Prospectus Supplement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. S-95 5816 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheet as of December 31, 1997....................... F-8 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-9 Statements of Changes in Partners' Deficit for the years ended December 31, 1997 and 1996.......................... F-10 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-11 Notes to Financial Statements............................... F-12 Independent Auditors' Report................................ F-16 Balance Sheet as of December 31, 1996....................... F-17 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-18 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1996 and 1995................................ F-19 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-20 Notes to Financial Statements............................... F-21
F-1 5817 WINGFIELD INVESTOR LIMITED PARTNERSHIP CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 95,610 Other assets................................................ 231,668 Investment property: Land...................................................... $ 327,500 Building and related personal property.................... 2,542,535 ---------- 2,870,035 Less: Accumulated depreciation............................ (865,522) 2,004,513 ---------- ---------- Total assets...................................... $2,331,791 ========== LIABILITIES AND PARTNERS' CAPITAL Other accrued liabilities................................... $ 84,947 Notes payable............................................... 2,473,220 Partners' deficit................................. (226,376) ---------- Total liabilities and partners' deficit........... $2,331,791 ==========
F-2 5818 WINGFIELD INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues: Rental income............................................. $579,408 $548,407 Other income.............................................. 45,038 50,223 -------- -------- Total Revenues.................................... 624,446 598,630 Expenses: Operating expenses........................................ 331,862 265,332 General and administrative expense........................ 12,168 12,567 Depreciation expense...................................... 79,355 79,355 Interest expense.......................................... 148,105 150,039 Property tax expense...................................... 40,388 44,016 -------- -------- Total expenses.................................... 611,878 551,309 Net income........................................ $ 12,568 $ 47,321 ======== ========
F-3 5819 WINGFIELD INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Operating activities: Net income................................................ $ 12,568 $ 47,321 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization............................. 79,355 79,355 Changes in accounts: Receivables and deposits and other assets.............. (17,305) (25,319) Accounts payable and accrued expenses.................. (11,203) (12,636) -------- -------- Net cash provided by operating activities......... 63,415 88,721 -------- -------- Investing activities: Property improvements and replacements.................... (44,653) (94,073) -------- -------- Net cash used in investing activities..................... (44,653) (94,073) -------- -------- Financing activities: Payments on mortgage...................................... (17,211) (23,832) Partners' distributions................................... (45,000) (45,454) -------- -------- Net cash used in financing activities..................... (62,211) (69,286) -------- -------- Net decrease in cash and cash equivalents................. (43,449) (74,638) Cash and cash equivalents at beginning of year............ 139,059 213,697 -------- -------- Cash and cash equivalents at end of period................ $ 95,610 $139,059 ======== ========
F-4 5820 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Wingfield Investors Limited Partnership as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 5821 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND INDEPENDENT AUDITORS' REPORT F-6 5822 INDEPENDENT AUDITORS' REPORT To the Partners of Wingfield Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Wingfield Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Greenville, South Carolina February 17, 1998 (except for Note 6, as to which the date is March 17, 1998) F-7 5823 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 141,355 Receivables and deposits.................................... 36,731 Restricted escrows.......................................... 97,621 Other assets (Note 1)....................................... 77,714 Investment properties -- at cost (Notes 1 and 2): Land...................................................... $ 327,500 Buildings and related personal property................... 2,497,882 ---------- 2,825,382 Less accumulated depreciation............................... (786,168) 2,039,214 ---------- ---------- TOTAL ASSETS................................................ $2,392,635 ========== LIABILITIES AND PARTNERS' DEFICIT LIABILITIES: Accounts payable.......................................... $ 16,965 Tenant security deposits payable.......................... 25,544 Accrued property taxes.................................... 25,643 Other liabilities......................................... 19,439 Mortgage notes payable (Note 2)........................... 2,498,987 PARTNERS' DEFICIT (Note 3): General partner........................................... $ (22,396) Limited partners (50 units issued and outstanding)........ (171,547) (193,943) ---------- ---------- TOTAL LIABILITIES AND PARTNERS' DEFICIT..................... $2,392,635 ==========
See notes to financial statements. F-8 5824 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 -------- -------- REVENUES: Rental income............................................. $735,927 $698,941 Other income.............................................. 60,993 49,335 -------- -------- Total revenues.................................... 796,920 748,276 -------- -------- EXPENSES: Operating................................................. 380,613 368,500 General and administrative................................ 24,336 24,110 Depreciation.............................................. 105,805 100,045 Interest.................................................. 217,248 219,473 Property taxes............................................ 51,287 55,893 -------- -------- Total expenses.................................... 779,289 768,021 -------- -------- NET INCOME (LOSS) (Note 5).................................. $ 17,631 $(19,745) ======== ======== NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNER (1%)......... $ 176 $ (197) NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS (99%)....... 17,455 (19,548) -------- -------- $ 17,631 $(19,745) ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT -- Based on 50 weighted average limited partnership units during the years ended December 31, 1997 and 1996...... $ 349 $ (391) ======== ========
See notes to financial statements. F-9 5825 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1997 AND 1996
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1995.......................... 50 $(21,164) $ (49,607) $ (70,771) Partners' distributions.................... -- (605) (59,848) (60,453) Net loss for the year ended December 31, 1996....................... -- (197) (19,548) (19,745) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1996.......................... 50 (21,966) (129,003) (150,969) Partners' distributions.................... -- (606) (59,999) (60,605) Net income for the year ended December 31, 1997....................... -- 176 17,455 17,631 -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1997.......................... 50 $(22,396) $(171,547) $(193,943) == ======== ========= =========
See notes to financial statements. F-10 5826 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 17,631 $ (19,745) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 105,805 100,045 Amortization of mortgage discount and loan costs....... 17,511 17,238 Change in operating assets and liabilities: Receivables and deposits............................. (8,337) (2,183) Other assets......................................... (2,286) (1,500) Accounts payable..................................... (6,498) (60,697) Tenant security deposits payable..................... 2,786 2,236 Accrued property taxes............................... (2,304) 405 Other liabilities.................................... (308) (23,340) --------- --------- Net cash provided by operating activities......... 124,000 12,459 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Property improvements and replacements.................... (99,723) (27,619) Net deposits to restricted escrows........................ (3,922) (749) --------- --------- Net cash used in investing activities............. (103,645) (28,368) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage notes payable.............. (32,092) (29,683) Partners' distributions................................... (60,605) (60,453) --------- --------- Net cash used in financing activities............. (92,697) (90,136) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (72,342) (106,045) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 213,697 319,742 --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 141,355 $ 213,697 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- Cash paid during the year for interest.................... $ 199,738 $ 202,058 ========= =========
See notes to financial statements. F-11 5827 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Wingfield Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Wingfield Apartments, a 131-unit multifamily residential complex located in Olathe, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the leases and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Investment Properties Investment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of fifteen to forty years for buildings and improvements and five to twelve years for furniture and fixtures. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Other Assets Included in other assets are deferred charges which consist of loan costs totaling $126,685 which are amortized over the terms of the related notes. Accumulated amortization as of December 31, 1997 was $52,757. F-12 5828 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $25,586 and $15,099 for the years ended December 31, 1997 and 1996, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, DESCRIPTION INTEREST RATE DATE AT MATURITY 1997 - ----------- --------- -------- -------- ----------- ------------ First mortgage.............. $18,800 7.83% 10/15/03 $2,211,679 $2,453,775 Second mortgage............. 519 7.83% 10/15/03 79,560 79,560 ------- ---------- $19,319 2,533,335 ======= Less unamortized discount... (34,348) ---------- Total....................... $2,498,987 ==========
Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ---------- 1998........................................................ $ 34,697 1999........................................................ 37,513 2000........................................................ 40,559 2001........................................................ 43,850 2002........................................................ 47,410 Thereafter.................................................. 2,329,306 ---------- Total....................................................... $2,533,335 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. 3. PARTNERS' DEFICIT Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. On February 15, 1998, the Partnership paid a distribution to the partners of $15,000. F-13 5829 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1997 and 1996 the Partnership paid the following amounts to affiliates of the general partner:
1997 1996 ------- ------- Property management fees.................................... $39,358 $36,670 Reimbursement of expenses................................... 15,852 15,756
In addition, affiliates of the general partner were paid $13,843 and $12,378 during 1997 and 1996, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. For the period from January 1, 1996 to August 31, 1997, the Partnership insured Wingfield Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the general partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the general partner by virtue of the agent's obligations was not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income (loss) as reported in the financial statements and Federal taxable income (loss) allocated to the partners in the Partnership's information returns for the years ended December 31, 1997 and 1996:
1997 1996 ------- -------- Net income (loss) as reported............................... $17,631 $(19,745) Add (deduct): Deferred revenue.......................................... (508) (23,368) Depreciation differences.................................. (2,610) (7,297) Accrued expenses.......................................... 200 300 ------- -------- Federal taxable income (loss)............................... $14,713 $(50,110) ======= ======== Federal taxable income (loss) per limited partnership unit.......................................... $ 291 $ (992) ======= ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1997 and 1996:
1997 1996 --------- --------- Net deficit as reported..................................... $(193,943) $(150,969) Differences in basis of assets and liabilities: Deferred revenue.......................................... 525 1,033 Accumulated depreciation.................................. (5,409) (2,799) Accrued expenses.......................................... 7,500 7,300 Syndication costs......................................... 102,577 102,577 --------- --------- Net assets -- tax basis..................................... $ (88,750) $ (42,858) ========= =========
F-14 5830 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. SUBSEQUENT EVENTS On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the general partner of the Partnership. F-15 5831 INDEPENDENT AUDITORS' REPORT To the Partners of Wingfield Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Wingfield Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1996, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Greenville, South Carolina February 21, 1997 F-16 5832 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1996 ASSETS Cash and cash equivalents................................... $ 213,697 Restricted cash -- tenant security deposits................. 22,758 Accounts receivable......................................... 40 Escrows for taxes and insurance............................. 5,596 Restricted escrows.......................................... 93,699 Other assets................................................ 1,500 Deferred charges -- net of accumulated amortization of $39,901................................................... 86,785 Apartment properties -- at cost (Notes 1 and 2): Land...................................................... $ 327,500 Buildings, improvements and related personal property..... 2,398,159 ---------- 2,725,659 Less accumulated depreciation............................. (680,363) 2,045,296 ---------- ---------- TOTAL ASSETS................................................ $2,469,371 ========== LIABILITIES AND PARTNERS' DEFICIT LIABILITIES: Accounts payable.......................................... $ 23,463 Accrued and other liabilities: Property taxes......................................... $ 27,947 Tenant security deposits............................... 22,758 Interest............................................... 8,556 Unearned rental collections............................ 1,035 Other.................................................. 10,156 70,452 ---------- Mortgage notes payable (Note 2)........................... 2,526,425 PARTNERS' DEFICIT (Note 3): General partner........................................... (21,966) Limited partners (50 units issued and outstanding)........ (129,003) (150,969) ---------- ---------- TOTAL LIABILITIES AND PARTNERS' DEFICIT..................... $2,469,371 ==========
See notes to financial statements. F-17 5833 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------- -------- REVENUES: Rentals................................................... $698,941 $668,454 Other income.............................................. 35,353 26,661 -------- -------- Total revenues.................................... 734,294 695,115 -------- -------- EXPENSES: Operating................................................. 153,239 151,373 Administrative............................................ 44,367 42,953 Property management fees (Note 4)......................... 36,670 35,097 Advertising and rental incentives......................... 29,877 17,913 Maintenance............................................... 109,833 141,213 Depreciation.............................................. 100,045 107,117 Amortization of deferred charges.......................... 12,858 12,857 Interest.................................................. 206,616 208,406 Property taxes............................................ 55,893 55,085 Insurance................................................. 18,623 19,352 -------- -------- Total expenses.................................... 768,021 791,366 -------- -------- LOSS FROM PROPERTY OPERATIONS............................... (33,727) (96,251) INTEREST INCOME............................................. 13,982 18,784 -------- -------- NET LOSS (Note 5)........................................... $(19,745) $(77,467) ======== ======== NET LOSS ALLOCATED TO GENERAL PARTNER (1%).................. $ (197) $ (775) NET LOSS ALLOCATED TO LIMITED PARTNERS (99%)................ (19,548) (76,692) -------- -------- $(19,745) $(77,467) ======== ======== NET LOSS PER LIMITED PARTNERSHIP UNIT -- Based on 50 weighted average limited partnership units during the years ended December 31, 1996 and 1995...... $ (391) $ (1,534) ======== ========
See notes to financial statements. F-18 5834 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1996 AND 1995
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- -------- --------- --------- PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 1994....................................... 50 $(19,783) $ 87,085 $ 67,302 Partners' distributions.................... -- (606) (60,000) (60,606) Net loss for the year ended December 31, 1995.................................... -- (775) (76,692) (77,467) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1995......... 50 (21,164) (49,607) (70,771) Partners' distributions.................... -- (605) (59,848) (60,453) Net loss for the year ended December 31, 1996.................................... -- (197) (19,548) (19,745) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1996......... 50 $(21,966) $(129,003) $(150,969) == ======== ========= =========
See notes to financial statements. F-19 5835 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $ (19,745) $(77,467) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 100,045 107,117 Amortization of deferred charges....................... 12,858 12,857 Amortization of mortgage discount...................... 4,380 4,121 Loss on disposal of property........................... -- 4,322 Change in operating assets and liabilities: Restricted cash...................................... (2,370) 1,525 Accounts receivable.................................. 1,597 (446) Escrow deposits for taxes and insurance.............. (1,410) 7,006 Other assets......................................... (1,500) -- Accounts payable..................................... (60,697) 70,254 Accrued property taxes............................... 405 4,384 Tenant security deposits liability................... 2,236 (964) Accrued interest..................................... 89 (89) Unearned rental collections.......................... (23,368) 9,167 Other liabilities.................................... (61) 4,761 --------- -------- Net cash provided by operating activities......... 12,459 146,548 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property improvements and replacements.................... (27,619) (66,292) Deposits to restricted escrows............................ (3,959) (2,471) Receipts from restricted escrows.......................... 3,210 -- --------- -------- Net cash used in investing activities............. (28,368) (68,763) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage notes payable.............. (29,683) (27,456) Partners' distributions................................... (60,453) (60,606) --------- -------- Net cash used in financing activities............. (90,136) (88,062) --------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (106,045) (10,277) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 319,742 330,019 --------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 213,697 $319,742 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- Cash paid during the year for interest.................... $ 202,058 $204,375 ========= ========
See notes to financial statements. F-20 5836 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Wingfield Investors Limited Partnership (A Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Wingfield Apartments, a 131-unit multifamily residential complex located in Olathe, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Apartment Properties Apartment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of fifteen to forty years for buildings and improvements and five to twelve years for furniture and fixtures. During 1995, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of SFAS No. 121 had no effect on the Partnership's financial statements. F-21 5837 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred Charges Deferred charges consist of loan costs which are amortized over the terms of the related notes. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $15,099 and $10,034 for the years ended December 31, 1996 and 1995, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, DESCRIPTION INTEREST RATE DATE AT MATURITY 1996 - ----------- --------- -------- -------- ----------- ------------ First mortgage...................... $18,800 7.83% 10/15/03 $2,211,679 $2,485,867 Second mortgage..................... 519 7.83 10/15/03 79,560 79,560 ------- ---------- $19,319 2,565,427 ======= Less unamortized discount........... 39,002 ---------- Total............................... $2,526,425 ==========
Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------ ---------- 1997........................................................ $ 32,092 1998........................................................ 34,697 1999........................................................ 37,513 2000........................................................ 40,559 2001........................................................ 43,850 Thereafter.................................................. 2,376,716 ---------- Total....................................................... $2,565,427 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. 3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profit and losses are to be allocated 1% to the general partner and 99% to the limited partners. F-22 5838 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. Subsequent to December 31, 1996, the Partnership paid a distribution to the partners of $15,150 on February 15, 1997. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1996 and 1995 the Partnership paid the following amounts to affiliates of the general partner:
1996 1995 ------- ------- Property management fees.................................... $36,670 $35,097 Reimbursement of expenses................................... 15,756 15,000
In addition, affiliates of the general partner were paid $12,378 and $9,269 during 1996 and 1995, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. The Partnership insures Wingfield Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net loss as reported in the financial statements and Federal taxable loss allocated to the partners in the Partnership's information returns for the years ended December 31, 1996 and 1995:
1996 1995 -------- -------- Net loss as reported........................................ $(19,745) $(77,467) Add (deduct): Deferred revenue.......................................... (23,368) 9,165 Depreciation differences.................................. (7,297) 4,413 Accrued expenses.......................................... 300 4,400 Loss on disposals......................................... -- (1,135) -------- -------- Federal taxable loss........................................ $(50,110) $(60,624) ======== ======== Federal taxable loss per limited partnership unit........... $ (992) $ (1,200) ======== ========
F-23 5839 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1996 and 1995:
1996 1995 --------- -------- Net deficit as reported..................................... $(150,969) $(70,771) Differences in basis of assets and liabilities: Deferred revenue.......................................... 1,033 24,401 Accumulated depreciation.................................. (2,799) 4,498 Accrued expenses.......................................... 7,300 7,000 Syndication costs......................................... 102,577 102,577 --------- -------- Net assets -- tax basis..................................... $ (42,858) $ 67,705 ========= ========
F-24 5840 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 5841 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 5842 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 5843 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 5844 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 5845 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 5846 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 5847 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 5848 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 5849 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 5850 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 5851 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 5852 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 5853 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 5854 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 5855 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 5856 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 5857 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 5858 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 5859 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 5860 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 5861 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 5862 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 5863 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 5864 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 5865 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 5866 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 5867
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 5868 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 5869
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 5870 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 5871 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 5872 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 5873
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 5874 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 5875 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 5876 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 5877
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 5878 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 5879 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 5880 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 5881 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 5882 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 5883 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 5884 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 5885 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 5886 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 5887 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 5888 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 5889 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 5890 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Wingfield Investors Limited Partnership Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Wingfield Investors Limited Partnership (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $14,318 in cash, or 370.25 Common OP Units of the Purchaser, or 572.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 5891 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 5892 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 5893 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 5894
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 5895
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 5896
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 5897
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexington Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 5898 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 5899 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Woodmere Associates, L.P. in exchange for your choice of: 879.25 of our 8.0% Class Two Partnership Preferred Units; 568.25 of our Partnership Common Units; or $21,980 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $21,980 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 5900 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Woodmere Associates, L.P............................ S-20 Comparative Per Unit Data.................... S-21 THE AIMCO OPERATING PARTNERSHIP................ S-22 RISK FACTORS................................... S-23 Risks to Unitholders Who Tender Their Units in the Offer............................... S-23 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-23 Offer Consideration May Not Equal the Value of Your Units............................ S-23 Conflicts of Interest with Respect to the Offer.................................... S-23 Possible Subsequent Offer at a Higher Price.................................... S-23 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-23 Holding Units May Result in Greater Future Value.................................... S-24 Offer Consideration May Not Represent Fair Market Value............................. S-24 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-24 Offer Consideration May Be Less Than Liquidation Value........................ S-24 Fairness Opinion of Third Party Relied on Information We Provided.................. S-24 Loss of Future Distributions from Your Partnership.............................. S-25 Possible Effect of the Other Exchange Offers on Us............................. S-25 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-25 Fundamental Change in Nature of Investment............................... S-25 Fundamental Change in Number of Properties Owned.................................... S-25 Lack of Trading Market for OP Units........ S-25 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-25 Uncertain Terms of Preferred Stock......... S-25 Redemption Price of Preferred OP Units..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-26 Limitations on Effecting a Change of Control.................................. S-26 Limitation on Transfer of OP Units......... S-26 Limited Voting Rights of Holders of OP Units.................................... S-26 Market Prices for AIMCO's Securities May Fluctuate................................ S-26 Litigation Associated with Partnership Acquisitions............................. S-26
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-27 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-27 Risk of Inability to Transfer Units for 12-Month Period.......................... S-27 Possible Change in Time Frame Regarding Sale of Property......................... S-27 Balloon Payments........................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-28 Background of the Offer...................... S-28 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-33 FAIRNESS OF THE OFFER.......................... S-35 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-35 Fairness to Unitholders who Tender their Units...................................... S-36 Fairness to Unitholders who do not Tender their Units................................ S-37 Comparison of Consideration to Alternative Consideration.............................. S-37 Allocation of Consideration.................. S-40 STANGER ANALYSIS............................... S-40 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-41 Summary of Reviews........................... S-42 Conclusions.................................. S-44 Assumptions, Limitations and Qualifications............................. S-44 Compensation and Material Relationships...... S-45 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Properties.......... S-46 Property Management.......................... S-46 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-47 Borrowing Policies........................... S-47 Competition.................................. S-48 Legal Proceedings............................ S-48 History of the Partnership................... S-48 Fiduciary Responsibility of the General Partner of Your Partnership................ S-48 Distributions and Transfers of Units......... S-49 Beneficial Ownership of Interests in Your Partnership................................ S-49 Compensation Paid to the General Partner and its Affiliates............................. S-50 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-52 THE OFFER...................................... S-55 Terms of the Offer; Expiration Date.......... S-55 Acceptance for Payment and Payment for Units...................................... S-55 Procedure for Tendering Units................ S-56 Withdrawal Rights............................ S-59
i 5901
PAGE ----- Extension of Tender Period; Termination; Amendment.................................. S-59 Prorations................................... S-60 Fractional OP Units.......................... S-60 Future Plans of the AIMCO Operating Partnership................................ S-60 Voting by the AIMCO Operating Partnership.... S-61 Dissenters' Rights........................... S-61 Conditions of the Offer...................... S-61 Effects of the Offer......................... S-64 Certain Legal Matters........................ S-64 Fees and Expenses............................ S-66 Accounting Treatment......................... S-66 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-67 Tax Consequences of Exchanging Units Solely for OP Units............................... S-67 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-68 Tax Consequences of Exchanging Units Solely for Cash................................... S-68 Disguised Sale Treatment..................... S-68 Adjusted Tax Basis........................... S-69 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-69 Passive Activity Losses...................... S-69 Tax Reporting................................ S-70 Foreign Offerees............................. S-70 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-70 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-72 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-80 DESCRIPTION OF PREFERRED OP UNITS.............. S-85 General...................................... S-85 Ranking...................................... S-85
PAGE ----- Distributions................................ S-85 Allocation................................... S-86 Liquidation Preference....................... S-86 Redemption................................... S-87 Voting Rights................................ S-87 Restrictions on Transfer..................... S-88 Description of Class I Preferred Stock....... S-88 Comparison of Preferred OP Units and Class I Preferred Stock............................ S-90 CONFLICTS OF INTEREST.......................... S-94 Conflicts of Interest with Respect to the Offer...................................... S-94 Conflicts of Interest that Currently Exist for Your Partnership....................... S-94 Competition Among Properties................. S-94 Features Discouraging Potential Takeovers.... S-94 Future Exchange Offers....................... S-94 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-95 LEGAL MATTERS.................................. S-96 EXPERTS........................................ S-96 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 5902 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Jacques-Miller Associates, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $4,331,000, less approximately $196,990 deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 5903 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 5904 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2012 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock S-3 5905 for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. S-4 5906 RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,416,546 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of S-5 5907 the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments of $2,416,546. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or S-6 5908 cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,758.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,420.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a S-7 5909 fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 5910 VALUATION OF UNITS We determined the offer consideration by estimating the value of [the/each] property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 466,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... $ 4,331,000 Plus: Cash and cash equivalents............................. 163,611 Plus: Other partnership assets, net of security deposits.... 205,772 Less: Mortgage debt, including accrued interest............. (3,063,493) Less: Accounts payable and accrued expenses................. (76,634) Less: Other liabilities..................................... (4,081) ----------- Partnership valuation before taxes and certain costs........ 1,556,175 Less: Disposition fees...................................... (129,930) Less: Extraordinary capital expenditures and deferred maintenance............................................... (196,990) Less: Closing costs......................................... (108,275) ----------- Estimated net valuation of your partnership................. 1,120,980 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 1,120,980 Total number of units............................. 51.0 ----------- Estimated valuation per unit................................ 21,980 =========== Cash consideration per unit................................. $ 21,980 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $21,980 by the $25 liquidation preference of each Preferred OP Unit to get 879.25 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $21,980 by a price of $38.69 to get 568.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 5911 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 21,980 Partnership Preferred Units................................. $ 21,980 Partnership Common Units.................................... $ 21,980 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 21,980 Estimated going concern value............................. $ 18,450 Alternative going concern value(1)........................ $ 21,880 Net book value (deficit).................................. $(21,667)
- --------------- (1) Assumes sale of properties when balloon payments are due instead of refinancing the mortgages. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's S-10 5912 investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Woodmere Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1985 for the purpose of owning and operating a single property located in Cincinnati, Ohio, known as "Woodmere Apartments." Woodmere Apartments consists of 150 units and was built in 1971. Your partnership has no employees. As of September 30, 1998, there were 51 units of limited partnership interest issued and outstanding, which were held of record by 41 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $1,887,000 of limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $2,766.47 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate on December 31, 2012, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $2,855,355, payable to Marine Midland, Bank of America and FNMA, which bears interest at the rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $103,182, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 5913 THE OFFER In exchange for each of your units, we are offering you a choice of: - 879.25 of our Class Two Partnership Preferred Units; - 568.25 of our Partnership Common Units; or - $21,980 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 51 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 879.25 Preferred OP Units, 568.25 Common OP Units, or $21,980 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 5914 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 5915 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $21,980 in cash, 879.25 Preferred OP Units or 568.25 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 5916 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $21,980. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $20,490 for the fiscal year ended December 31, 1998. The property manager received management fees of $53,662 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $280,245 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 5917 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 5918
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 5919 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 5920
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 5921 SUMMARY FINANCIAL INFORMATION OF WOODMERE ASSOCIATES, L.P. The summary financial information of Woodmere Associates, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Woodmere Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. The amounts for 1995, 1994 and 1993 are not included in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein. WOODMERE ASSOCIATES, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT INFORMATION) Operating Data: Total Revenues................. $ 777 $ 780 $ 1,057 $ 1,013 $ 995 $ 976 $ 937 Net Income (Loss)............ $ 25 $ 61 $ 73 $ (1) $ (81) $ (87) $ (109) Net Income per limited partnership unit......... $ 488.75 $ 1,188.85 $ 1.417.06 $ (19.41) $ (1,566.43) $ (1,681.62) $ (2,132.60) Distributions per limited partnership unit......... $ -- $ -- $ -- $ 977.15 $ 772.70 $ 995.14 $ -- Distributions per limited partnership unit (which represent a return of capital).............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT INFORMATION) Balance Sheet Data: Cash and Cash Equivalents.... $ 165 $ 163 $ 161 $ 145 $ 226 $ 263 $ 226 Real Estate, Net of Accumulated Depreciation... $ 1,507 $ 1,484 $ 1,490 $ 1,503 $ 1,504 $ 1,621 $ 1,813 Total Assets........... $ 1,942 $ 1,936 $ 1,954 $ 1,956 $ 2,070 $ 2,256 $ 2,450 Notes Payable................ $ 2,870 $ 2,939 $ 2,923 $ 2,988 $ 3,047 $ 3,101 $ 3,162 General Partners' Capital/(Deficit).......... $ (27) $ (27) $ (27) $ (28) $ (27) $ (26) $ (25) Limited Partners' Capital/(Deficit).......... $ (1,054) $ (1,090) $ (1,078) $ (1,150) $ (1,100) $ (980) $ (843) Partners' Capital/(Deficit).......... $ (1,081) $ (1,117) $ (1,105) $ (1,178) $ (1,127) $ (1,006) $ (868) Total Distributions.... -- -- -- 50 40 51 -- Book value per limited partnership unit........... $(20,651.94) $(21,365.51) $(21,131.88) $(22,548.94) $(21,552.38) $(19,213.28) $(16,536.52) Net increase (decrease) in cash and cash equivalents................ $ 4 $ 18 $ 16 $ (81) $ (37) $ 37 $ 6 Net cash provided by operating activities....... $ 185 $ 156 $ 214 $ 141 $ 152 $ 221 $ 143 Ratio of earnings to fixed charges.................... 1.13/1 1.30/1 1.27/1 1.00/1 0.71/1 0.70/1 0.58/1
S-20 5922 COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO WOODMERE OPERATING ASSOCIATES, PARTNERSHIP L.P. ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $1,420.63 $ 0 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $1,758.50 $ 0
S-21 5923 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-22 5924 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $4,331,000 less approximately $196,990 of deferred maintenance and investment. It is possible that the sale of the properties could result in you receiving more per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no S-23 5925 present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-24 5926 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2012 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to S-25 5927 sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, S-26 5928 removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of your general partner (which is our subsidiary). Such consent may be withheld by your general partner in its sole discretion. Your general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which would occur if 50% or more of the total interest in your partnership is transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, your general partner may not consent to a transfer for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,416,546 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. S-27 5929 BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest, consisting of a 0% limited partnership interest and a .992% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or S-28 5930 have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its S-29 5931 assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments totaling $2,416,546. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2002 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's properties would require a vote of the limited partner owning a majority of the outstanding units. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and S-30 5932 possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,758.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-31 5933 There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,420.63 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. S-32 5934 - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Woodmere Apartments...................... $466,000 10.75% $4,331,000 ----------
- --------------- (1) The total net operating income is equal to total revenues of $1,041,348, less total expenses of $530,757 and recurring replacement costs of $45,000. S-33 5935 - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $1,120,980. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 466,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership properties................... 4,331,000 Plus: Cash and cash equivalents............................. 163,611 Plus: Other partnership assets, net of security deposits.... 205,772 Less: Mortgage debt, including accrued interest............. (3,063,493) Less: Accounts payable and accrued expenses................. (76,634) Less: Other liabilities..................................... (4,081) ----------- Partnership valuation before taxes and certain costs........ 1,556,175 Less: Disposition fees...................................... (129,930) Less: Extraordinary capital expenditures and deferred maintenance............................................... (196,990) Less: Closing costs......................................... (108,275) ----------- Estimated net valuation of your partnership................. 1,120,980 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ 1,120,980 Total number of units............................. 51.0 Estimated valuation per unit................................ 21,980 =========== Cash consideration per unit................................. 21,980 ===========
In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $21,980 by the $25 liquidation preference of each Preferred OP Unit to get 879.25 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $21,980 by a price of $38.69 to get 568.25 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $1,120,980 or .20% is the net valuation of your partnership. S-34 5936 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $61,000 for the nine months ended September 30, 1997 to $25,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. S-35 5937 11. The estimated unit value of $21,980, based on a total estimated value of your partnership's property of $4,331,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $1,758.50 per year on the number of Preferred OP Units, or distributions of $1,420.63 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $0. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. S-36 5938 FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-37 5939 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2012, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $21,980 Partnership preferred units................................. 21,980(1) Partnership common units.................................... 21,980(1) Alternatives: Not Prices on secondary market................................ Available Estimated liquidation proceeds............................ $21,980 Estimated going concern value............................. $18,450 Net book value (deficit).................................. $21,667 Alternative going concern value........................... $21,880(2)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-38 5940 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $18,450 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $21,667 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $19,107 per unit, going concern value of $15,309 per unit and liquidation value of $17,093 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account S-39 5941 (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $2,873, $6,671 and $4,887. In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and S-40 5942 analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
WOODMERE APARTMENTS ---------- Total Revenues.............................................. $1,114,548 Operating Expenses.......................................... (583,916) Replacement Reserves -- Net................................. (120,097) Debt Service................................................ (323,814) Capital Expenditures........................................ (5,200) ---------- Net Cash Flow..................................... $ (81,521) ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget S-41 5943 are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; (iii) extraordinary capital expenditure estimates in the amount of $196,990 and a disposition fee to the general partner of S-42 5944 $129,930. Stanger observed that your partnership liquidation value of $1,120,980 was divided by the total units outstanding of 51 to provide the liquidation value per unit of $21,980. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $466,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $40,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.3%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 51 to achieve management's estimate of going concern value of $20,729 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $21,980 per unit is equal to management's estimate of liquidation value, and reflects a 19% premium to management's estimate of going concern value. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following closing, preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 5, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. S-43 5945 In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, direct capitalization rate of 10.25%, transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10.75%. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12.7% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to more than 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $19,107, $15,309, and $17,093 representing discounts to the offer price of 13%, 30% and 22%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the S-44 5946 information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Woodmere Associates, L.P., is a Delaware limited partnership which completed a private offering in 1985. Insignia acquired the general partner of your partnership in 1992. AIMCO acquired Insignia in October 1998. There are currently a total of 41 limited partners of your partnership and a total of 51 units of your S-45 5947 partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1985 for the purpose of owning an apartment property located in Cincinnati, Ohio, known as "Woodmere Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1971 and consists of 150 apartment units. There are 24 one-bedroom apartments, 84 two-bedroom apartments and 42 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 92.98% in 1998, 92.67% in 1997 and 92.67% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $196,990 and are intended to be paid for out of cash flow or borrowings. Renovation items include exterior paint, stairwells, balconies, sidewalks, parking lot, and pool. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $551 $518 $518 $511 $495
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $76,925 of $1,414,000 of assessed valuation with a current yearly tax rate of 5.44%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 5.71% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2012 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited S-46 5948 partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to improve in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 93% and $539, respectively, at December 31, 1998, compared to 93% and $551, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy and rental rates to improve in the near future because the Cincinnati market is economically strong. In addition, the general partner noted that it expects to spend approximately $196,990 for capital improvements at the property in 1999 to repair and improve the property's exterior paint, stairwells, balconies, sidewalks, parking lot and pool. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $2,855,355, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $103,182, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. S-47 5949 COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $1,887,000 of limited partnership units in 1985. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2012, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partner of your partnership will not incur any liability to your partnership or any limited partner for any mistakes or errors in judgment or for any acts or omissions believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership agreement. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct by the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-48 5950 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $37,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $ 0 $0 $ 0 1994................................... 1,000 0 0 12,750 1995................................... 776 397 0 9,801 1996................................... 990 506 0 12,496 1997................................... 0 0 0 0 1998................................... 0 0 0 0 ------ ---- -- ------- Total........................ $2,766 $903 $0 $35,047 ====== ==== == =======
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions including transactions believed to be between related parties, family members or the same beneficial owner. BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a .992% interest in your partnership, including no limited partnership units held by us and the .992% interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-49 5951 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ $23,249 1995........................................................ 20,524 1996........................................................ 30,000 1997........................................................ 33,000 1998........................................................ 20,490
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- ------- 1994........................................................ $49,536 1995........................................................ 49,536 1996........................................................ 50,000 1997........................................................ 52,000 1998........................................................ 53,662
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-50 5952 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Woodmere Associates, L.P. taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
WOODMERE ASSOCIATES, LP ------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ----------------- ----------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 SELECTED FINANCIAL INFORMATION ------- ------- ------- ------- ------- ------- ------- Cash and Cash Equivalents............................. $ 165 $ 163 $ 161 $ 145 $ 226 $ 263 $ 226 Land & Building....................................... 4,723 4,582 4,618 4,513 4,410 4,319 4,254 Accumulated Depreciation.............................. (3,216) (3,098) (3,128) (3,010) (2,906) (2,698) (2,441) Other Assets.......................................... 270 289 303 308 340 372 411 ------- ------- ------- ------- ------- ------- ------- Total Assets................................. $ 1,942 $ 1,936 $ 1,954 $ 1,956 $ 2,070 $ 2,256 $ 2,450 ======= ======= ======= ======= ======= ======= ======= Notes Payable......................................... $ 2,870 $ 2,939 $ 2,923 2,988 $ 3,047 $ 3,101 $ 3,162 Other Liabilities..................................... 153 114 136 146 150 161 156 ------- ------- ------- ------- ------- ------- ------- Total Liabilities............................ $ 3,023 3,053 3,059 3,134 3,197 3,262 3,318 ------- ------- ------- ------- ------- ------- ------- Partners Deficit...................................... $(1,081) $(1,117) $(1,105) $(1,178) $(1,127) $(1,006) $ (868) ======= ======= ======= ======= ======= ======= =======
WOODMERE ASSOCIATES, LP -------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ---------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------- --------- --------- ------- ---------- ---------- ---------- Rental Revenue............................. $ 716 $ 735 $ 992 $ 932 $ 932 $ 921 $ 891 Other Income............................... 61 45 65 81 63 55 46 ------- --------- --------- ------- ---------- ---------- ---------- Total Revenue..................... 777 780 1,057 1,013 995 976 937 ------- --------- --------- ------- ---------- ---------- ---------- Operating Expenses......................... 374 349 482 554 517 421 428 General & Administrative................... 30 22 36 10 10 33 52 Depreciation............................... 89 89 118 104 208 257 253 Interest Expense........................... 199 204 272 277 281 286 259 Property Taxes............................. 60 55 76 69 60 66 54 ------- --------- --------- ------- ---------- ---------- ---------- Total Expenses.................... 752 719 984 1,014 1,076 1,063 1,046 ------- --------- --------- ------- ---------- ---------- ---------- Net Income before extraordinary items...... $ 25 $ 61 $ 73 $ (1) $ (81) $ (87) $ (109) ======= ========= ========= ======= ========== ========== ========== Extraordinary Items........................ -- -- -- -- -- -- -- ------- --------- --------- ------- ---------- ---------- ---------- Net Income................................. $ 25 $ 61 $ 73 $ (1) $ (81) $ (87) $ (109) ======= ========= ========= ======= ========== ========== ========== Net Income per limited partnership unit.... $488.75 $1,188.85 $1,417.06 $(19.41) $(1,566.43) $(1,681.62) $(2,132.60) ======= ========= ========= ======= ========== ========== ========== Distributions per limited partnership unit..................................... $ -- $ -- $ -- $977.15 $ 772.70 $ 995.14 $ -- ======= ========= ========= ======= ========== ========== ==========
S-51 5953 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $25,000 for the nine months ended September 30, 1998, compared to $61,000 for the nine months ended September 30, 1997. The decrease in net income of $36,000 was primarily the result of an increase in operating and general and administrative expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $777,000 for the nine months ended September 30, 1998, compared to $780,000 for the nine months ended September 30, 1997, a decrease of $3,000, or 0.38%. The Partnership increased rental rates by an average of 4.4%, which was partially offset by a decrease in occupancy of 2.5% to 92.2%. In addition, bad debt expense increased $14,000. The increase in Other Income of $16,000 was due to higher cleaning and damage fees, lease cancellation fees and pet fees. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $374,000 for the nine months ended September 30, 1998, compared to $349,000 for the nine months ended September 30, 1997, an increase of $25,000, or 7%. The increase is due to higher advertising costs and maintenance expenses. The increase in advertising is due to management's efforts to increase occupancy. The Partnership incurred higher HVAC and yard maintenance costs during 1998 as compared to the corresponding period for 1997. Partnership Property management expenses totaled $40,000 for both periods. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased $8,000 for the nine months ended September 30, 1998, compared to the corresponding period for 1997. This increase is due primarily to higher asset management fees charged by affiliates of the General Partner for handling partnership administrative matters. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $199,000 for the nine months ended September 30, 1998, compared to $204,000 for the nine months ended September 30, 1997, a decrease of $5,000, or 2.5%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. S-52 5954 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized net income of $73,000 for the year ended December 31, 1997, compared to a net loss of $1,000 for the year ended December 31, 1996. The increase in net income of $74,000 was primarily the result of an increase in revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,057,000 for the year ended December 31, 1997, compared to $1,013,000 for the year ended December 31, 1996, an increase of $44,000, or 4.34%. This increase is due primarily to a 4% increase in occupancy, along with a slight increase in the rental rates. Partially off-setting the increase was lower revenues for laundry income. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $482,000 for the year ended December 31, 1997, compared to $554,000 for the year ended December 31, 1996, a decrease of $72,000 or 13%. The decrease is primarily due to lower maintenance costs as the property incurred parking lot and exterior painting expenses during 1996, with no similar projects during 1997. Property taxes increased $7,000 due to an increase in the assessed value for the property. Management expenses totaled $52,000 for the year ended December 31, 1997, compared to $51,000 for the year ended December 31, 1996, an increase of $1,000, or 2%. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $36,000, an increase of $20,000 for the year ended December 31, 1997, compared to the prior year. This increase is due primarily to general increases in partnership administrative and management costs. DEPRECIATION EXPENSE Depreciation expense increased $14,000 (13.5%) to $118,000 due primarily to capitalized additions to the investment property during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $272,000 for the year ended December 31, 1997, compared to $277,000 for the year ended December 31, 1996, a decrease of $5,000, or 1.8%. The decrease is a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership incurred a net loss of $1,000 for the year ended December 31, 1996, compared to a net loss of $81,000 for the year ended December 31, 1995. The decrease in the net loss of $80,000 was primarily the result of an increase in revenues and a decrease in depreciation expense. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,013,000 for the year ended December 31, 1996, compared to $995,000 for the year ended December 31, 1995, an increase of $18,000, or S-53 5955 1.8%. This increase is due primarily to a 4% increase in rental rates, coupled with a 2.8% increase in occupancy. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $554,000 for the year ended December 31, 1996, compared to $517,000 for the year ended December 31, 1995, an increase of $37,000 or 7.2%. This increase is primarily due to parking lot and exterior painting expenses incurred during 1996, with no similar projects during 1995. Management expenses totaled $51,000 for the year ended December 31, 1996, compared to $50,000 for the year ended December 31, 1995, an increase of $1,000, or 2%. DEPRECIATION EXPENSE Depreciation expense decreased $104,000 (50%) to $104,000 as half of the initial costs of the buildings and improvements became fully depreciated during 1995. INTEREST EXPENSE Interest expense totaled $277,000 for the year ended December 31, 1996, compared to $281,000 for the year ended December 31, 1995, a decrease of $4,000, or 1.42%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $165,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $2,870,000. The mortgage requires monthly payments of approximately $27,000 until November, 2002, at which time a balloon payment of approximately $2,520,000 will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 7.6%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-54 5956 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 51 units of your partnership (up to 12.75 units) for consideration per unit of (i) 879.25 Preferred OP Units, (ii) 568.25 Common OP Units, or (iii) $21,980 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The offer consideration shall be reduced by any interim distributions made by your partnership between S-55 5957 , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-56 5958 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-57 5959 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-58 5960 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-59 5961 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-60 5962 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-61 5963 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-62 5964 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-63 5965 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-64 5966 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-65 5967 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-66 5968 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-67 5969 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-68 5970 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-69 5971 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-70 5972 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-71 5973 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's sooner pursuant to the terms of the AIMCO Distributable Cash (as defined in your Operating Partnership's agreement of limited partnership's agreement of limited partnership (the "AIMCO Operating partnership). The termination date of your Partnership Agreement") or as provided by partnership is December 31, 2012. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating develop, operate, lease, manage and hold for Partnership is to conduct any business that investment and production of income with may be lawfully conducted by a limited your partnership's property. Subject to partnership organized pursuant to the restrictions contained in your partnership's Delaware Revised Uniform Limited Part- agreement of limited partnership, your nership Act (as amended from time to time, partnership may perform all acts necessary, or any successor to such statute) (the advisable or convenient to the business of "Delaware Limited Partnership Act"), your partnership including borrowing money provided that such business is to be and creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-72 5974 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 51 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners, except that the admission of the Unitholders is required in connection with limited partners other than those who the admission of any additional OP purchase the 51 units and substituted Unitholder. See "Description of OP limited partners must be effected by an Units -- Management by the AIMCO GP" in the amendment to your partnership's agreement of accompanying Prospectus. Subject to Delaware limited partnership executed and law, any additional partnership interests acknowledged by the general partner and all may be issued in one or more classes, or one the limited partners. No property other than or more series of any of such classes, with cash may be contributed by any limited such designations, preferences and relative, partner. participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its contract with the general partner or its subsidiaries or other persons in which it affiliates for various goods and services as has an equity investment, and such persons specified in your partnership's agreement may borrow funds from the
S-73 5975 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP of limited partnership, provided the terms AIMCO Operating Partnership, on terms and and conditions of such dealings are as conditions established in the sole and favorable as could be reasonably obtained absolute discretion of the general partner. from third parties offering similar goods To the extent consistent with the business and services of similar quality and purpose of the AIMCO Operating Partnership reliability. In addition, the partners are and the permitted activities of the general authorized to lend money to your partnership partner, the AIMCO Operating Partnership may on commercially reasonable terms without transfer assets to joint ventures, limited notification to any of the other partners liability companies, partnerships, and all or a portion of your partnership's corporations, business trusts or other property may be conveyed as security for any business entities in which it is or thereby indebtedness; provided that such borrowing becomes a participant upon such terms and from and granting of security to limited subject to such conditions consistent with partners may be undertaken only the extent the AIMCO Operating Partnership Agreement allowed under applicable law. All advances and applicable law as the general partner, by any partner will be considered a loan and in its sole and absolute discretion, the time and amount of the repayment of such believes to be advisable. Except as loans will be in the sole discretion of the expressly permitted by the AIMCO Operating general partners; provided that interest on Partnership Agreement, neither the general such loans shall accrue at the greater of partner nor any of its affiliates may sell, 2 1/2% over the prime interest rate charged transfer or convey any property to the AIMCO by the Third National Bank in Nashville, Operating Partnership, directly or adjusted monthly or the general partner's indirectly, except pursuant to transactions accrual interest cost in borrowing such that are determined by the general partner amounts. The principal and interest with in good faith to be fair and reasonable. respect to such loans will be fully paid prior to the distributions of funds to the partners unless such loans contain a specific provision to the contrary. Any partner who loans money to your partnership will be considered an unrelated creditor with respect to such loan to the extent allowed by applicable law.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to obtain a loan of up to contains no restrictions on borrowings, and $1,650,000 from an institutional lender and the general partner has full power and a loan in the amount of up to $1,050,000 authority to borrow money on behalf of the from an affiliate of the general partner and AIMCO Operating Partnership. The AIMCO to execute, acknowledge and deliver such Operating Partnership has credit agreements documents and instruments, including that restrict, among other things, its promissory notes, collection agreements, ability to incur indebtedness. deeds to secure debts, deeds of trust, mortgages, assignments and other documents and security instruments as may be necessary or desirable in connection with obtaining such loan and also borrow money in the ordinary course of business and as security therefor to mortgage all or any part of the real property of your partnership.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles a limited partner to written demand with a statement of the inspect the register containing the names purpose of such demand and at such OP and addresses of all limited partners at all Unitholder's own expense, to obtain a reasonable times at the principal office of current list of the name and last known your partnership. business, residence or mailing address of the general partner and each other OP Unitholder.
S-74 5976 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The managing general partner of your All management powers over the business and partnership is primarily responsible for the affairs of the AIMCO Operating Partnership day-to-day operations of your partnership. are vested in AIMCO-GP, Inc., which is the The general partners represent your general partner. No OP Unitholder has any partnership in all transactions with third right to participate in or exercise control parties, unless they designate in writing or management power over the business and another person as representative of your affairs of the AIMCO Operating Partner- partnership. No limited partner has any ship. The OP Unitholders have the right to right or power to take part in any way in vote on certain matters described under the control of your partnership business "Comparison of Your Units and AIMCO OP except as may be expressly provided in your Units -- Voting Rights" below. The general partnership's agreement of limited partner may not be removed by the OP partnership or by applicable statutes. Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership will not incur any Agreement, the general partner is not liable liability to your partnership or any limited to the AIMCO Operating Partnership for partner for any mistakes or errors in judg- losses sustained, liabilities incurred or ment or for any acts or omissions believed benefits not derived as a result of errors by the general partner in good faith to be in judgment or mistakes of fact or law of within the scope of authority conferred upon any act or omission if the general partner it by your partnership agreement. In acted in good faith. The AIMCO Operating addition, your partnership will, to the Partnership Agreement provides for extent permitted by law, indemnify and save indemnification of AIMCO, or any director or harmless the general partner against and officer of AIMCO (in its capacity as the from any per- previous
S-75 5977 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sonal loss, liability (including attorneys' general partner of the AIMCO Operating fees) or damage incurred by it as the result Partnership), the general partner, any of any act or omission in its capacity as officer or director of general partner or general partner unless such loss, liability the AIMCO Operating Partnership and such or damage results from gross negligence or other persons as the general partner may willful misconduct by the general partner. designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner following the business and affairs of the AIMCO notice and failure to cure the injury to Operating Partnership. The general partner your partnership within a reasonable time may not be removed as general partner of the for cause upon the vote of the limited AIMCO Operating Partnership by the OP partners holding 67% of the then outstanding Unitholders with or without cause. Under the units. A general partner may withdraw AIMCO Operating Partnership Agreement, the voluntarily from your partnership with the general partner may, in its sole discretion, consent of holders of 67% of the then prevent a transferee of an OP Unit from outstanding units. A substitute general becoming a substituted limited partner partner may be elected upon the affirmative pursuant to the AIMCO Operating Partnership vote of limited partners owning 51% of the Agreement. The general partner may exercise units. A limited partner may not transfer this right of approval to deter, delay or his interests without the consent of the hamper attempts by persons to acquire a general partner which may be withheld at the controlling interest in the AIMCO Operating sole discretion of the general partner. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the limited set forth in the AIMCO Operating Partnership partners owning Agreement,
S-76 5978 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP more than 67% of the units. Any amendment whereby the general partner may, without the which alters a limited partner's interest in consent of the OP Unitholders, amend the the capital profits or Distributable Cash of AIMCO Operating Partnership Agreement, your partnership must be approved by the amendments to the AIMCO Operating affected partner and the general partner Partnership Agreement require the consent of except in limited circumstances described in the holders of a majority of the outstanding your partnership's agreement of limited Common OP Units, excluding AIMCO and certain partnership. Such proposed amendments may be other limited exclusions (a "Majority in presented to the limited partners upon the Interest"). Amendments to the AIMCO motion of the general partners or receipt of Operating Partnership Agreement may be a written request executed by limited proposed by the general partner or by partners owning at least 10% of the units holders of a Majority in Interest. Following then outstanding. For purposes of obtaining such proposal, the general partner will the consent of the limited partners, the submit any proposed amendment to the OP general partner may require a response Unitholders. The general partner will seek within a specified time, not less than the written consent of the OP Unitholders on thirty days from the submission of the the proposed amendment or will call a proposal to the limited partners. Failure to meeting to vote thereon. See "Description of respond in such time will constitute a vote OP Units -- Amendment of the AIMCO Operating which is consistent with the general Partnership Agreement" in the accompanying partner's recommendation with respect to Prospectus. such proposal.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives an annual fee of 1% of the gross its capacity as general partner of the AIMCO collected income from your partnership's Operating Partnership. In addition, the property. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, the liability of each gross negligence, no OP Unitholder has of the limited partners for his share of the personal liability for the AIMCO Operating losses and debts of your partnership shall Partnership's debts and obligations, and be limited to the total capital contribution liability of the OP Unitholders for the of such limited partners (subject to the AIMCO Operating Partnership's debts and terms and conditions pursuant to which such obligations is generally limited to the capital contribution is to be paid) plus, to amount of their investment in the AIMCO the extent that such limited partner Operating Partnership. However, the rightfully has received the return of such limitations on the liability of limited capital contribution, any sum, not in excess partners for the obligations of a limited of such return, necessary to discharge partnership have not been clearly liabilities of your partnership to all established in some states. If it were creditors who extended credit before such determined that the AIMCO Operating Part- return, provided that the liability with nership had been conducting business in any respect to rightfully returned capital state without compliance with the applicable contribution is limited to one year from the limited partnership statute, or that the date of such return. right or the exercise of the right by the holders of OP Units as a group to
S-77 5979 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner relevant partnership agreement, Delaware law must devote such of its time and that of its generally requires a general partner of a employees to your partnership business as Delaware limited partnership to adhere to may be reasonably necessary to carry on and fiduciary duty standards under which it owes conduct your partnership's business. The its limited partners the highest duties of general partner must use its best effort to good faith, fairness and loyalty and which do all other things and perform such other generally prohibit such general partner from duties as may be reasonably necessary to the taking any action or engaging in any successful operation of your partnership and transaction as to which it has a conflict of the general partner must act as a fiduciary interest. The AIMCO Operating Partnership with respect to the assets and business of Agreement expressly authorizes the general your partnership. The general partner and partner to enter into, on behalf of the its affiliates may engage in whatever AIMCO Operating Partnership, a right of activities they choose, whether the same be first opportunity arrangement and other competitive with your partnership or conflict avoidance agreements with various otherwise, including, without limitation, affiliates of the AIMCO Operating the acquisition, ownership, financing, Partnership and the general partner, on such syndication, development, improvement, terms as the general partner, in its sole leasing, operation, management and brokerage and absolute discretion, believes are of real property (including real property advisable. The AIMCO Operating Partnership that may be in the vicinity of a competitive Agreement expressly limits the liability of with real property owned by your the general partner by providing that the partnership), without having or incurring general partner, and its officers and any obligation to disclose or to offer any directors will not be liable or accountable interest in such activities to your partner- in damages to the AIMCO Operating ship or the partners. See "Your Partnership, the limited partners or as- Partnership -- Fiduciary Responsibility of signees for errors in judgment or mistakes the General Partner of Your Partnership." of fact or law or of any act or omission if the general partner or such director or In general, your partnership's agreement of officer acted in good faith. See limited partnership and the AIMCO Operating "Description of OP Units -- Fiduciary Partnership Agreement have limitations on Responsibilities" in the accompanying the liability of the general partner but Prospectus. such limitations differ in terms and provide more protection for the general partner of the AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability.
S-78 5980 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
S-79 5981 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terest entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re- tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may elect a as holders of the Common OP termination of the AIMCO general partner and approve Units. See "Description of Operating Partnership or disapprove the sale of OP Units" in the accompany- Agreement and certain all or a material portion of ing Prospectus. So long as transactions such as the your partnership's property. any Preferred OP Units are institution of bankruptcy The approval of holders of outstanding, in addition to proceedings, an assignment 67% of the outstanding units any other vote or consent of for the benefit of creditors is necessary to remove a partners required by law or and certain transfers by the general partner, approve the by the AIMCO Operating general partner of its withdrawal of a general Partnership Agreement, the interest in the AIMCO partner, amend your affirmative vote or consent Operating Partnership or the partnership's agreement of of holders of at least 50% admission of a successor limited partnership, subject of the outstanding Preferred general partner. to certain limitations, and OP Units will be necessary terminate your partnership. for effecting any amendment Under the AIMCO Operating of any of the provisions of Partnership Agreement, the A general partner may cause the Partnership Unit general partner has the the dissolution of the Designation of the Preferred power to effect the partnership by retiring. OP Units that materially and acquisition, sale, transfer, Upon such event, within adversely affects the rights exchange or other ninety days of the or preferences of the disposition of any assets of retirement, the limited holders of the Preferred OP the AIMCO Operating partners owning 67% of the Units. The creation Partnership (including, but units may vote to continue not limited to, the exercise the business of your or partnership.
S-80 5982 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS If no general partner or issuance of any class or grant of any conversion, remains, all of the limited series of partnership units, option, privilege or partner by unanimous consent including, without subscription right or any may vote to reform your limitation, any partner- other right available in partnership and the limited ship units that may have connection with any assets partners holding 67% of the rights senior or superior to at any time held by the units may elect one or more the Preferred OP Units, AIMCO Operating Partnership) successor general partner to shall not be deemed to or the merger, continue the business of materially adversely affect consolidation, your partnership. In such an the rights or preferences of reorganization or other event of such reformation, the holders of Preferred OP combination of the AIMCO your partnership will dis- Units. With respect to the Operating Partnership with solve and all of its assets exercise of the above or into another entity, all and liability will be described voting rights, without the consent of the contributed to a new each Preferred OP Units OP Unitholders. partnership and all parties shall have one (1) vote per of your partnership will Preferred OP Unit. The general partner may become parties to the new cause the dissolution of the partnership. AIMCO Operating Partnership by an "event of withdrawal," In general, you have greater as defined in the Delaware voting rights in your Limited Partnership Act partnership than you will (including, without limi- have as an OP Unitholder. OP tation, bankruptcy), unless, Unitholders cannot remove within 90 days after the the general partner of the withdrawal, holders of a AIMCO Operating Partnership. "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to refinancing, is to be Operating Partner-
S-81 5983 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS shared among the partners. ship, quarterly cash cause the AIMCO Operating Distributions of distributions at the rate of Partnership to distribute Distributable Cash are to be $0.50 per Preferred OP Unit; quarterly all, or such made quarterly on or about provided, however, that at portion as the general January 15, April 15, July any time and from time to partner may in its sole and 15 and October 15. The dis- time on or after the fifth absolute discretion tributions payable to the anniversary of the issue determine, of Available Cash partners are not fixed in date of the Preferred OP (as defined in the AIMCO amount and depend upon the Units, the AIMCO Operating Operating Partnership operating results and net Partnership may adjust the Agreement) generated by the sales or refinancing pro- annual distribution rate on AIMCO Operating Partnership ceeds available from the the Preferred OP Units to during such quarter to the disposition of your the lower of (i) 2.00% plus general partner, the special partnership's assets. the annual interest rate limited partner and the then applicable to U.S. holders of Common OP Units Treasury notes with a on the record date es- maturity of five years, and tablished by the general (ii) the annual dividend partner with respect to such rate on the most recently quarter, in accordance with issued AIMCO non-convertible their respective interests preferred stock which ranks in the AIMCO Operating on a parity with its Class H Partnership on such record Cumulative Preferred Stock. date. Holders of any other Such distributions will be Preferred OP Units issued in cumulative from the date of the future may have priority original issue. Holders of over the general partner, Preferred OP Units will not the special limited partner be entitled to receive any and holders of Common OP distributions in excess of Units with respect to cumulative distributions on distributions of Available the Preferred OP Units. No Cash, distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the AIMCO Operating Partnership and no other dis-
S-82 5984 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tribution of cash or other (i) satisfy the requirements property may be declared or for qualifying as a REIT made, directly or under the Code and the indirectly, by the AIMCO Treasury Regulations and Operating Partnership with (ii) avoid any Federal respect to any Junior Units income or excise tax (as defined below), nor liability of AIMCO. See shall any Junior Units be "Description of OP redeemed, purchased or Units -- Distributions" in otherwise acquired for the accompanying Prospectus. consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and such person will and the Preferred OP Units Operating Partnership become a substitute limited are not listed on any Agreement restricts the partner if: (1) a written securities exchange. The transferability of the OP assignment has been duly Preferred OP Units are Units. Until the expiration executed and acknowledged by subject to restrictions on of one year from the date on the assignor and assignee transfer as set forth in the which an OP Unitholder and delivered to the general AIMCO Operating Partnership acquired OP Units, subject partner, (2) the approval of Agreement. to certain exceptions, such the general partner which OP Unitholder may not may be withheld in the sole Pursuant to the AIMCO transfer all or any por- discretion and which will be Operating Partnership tion of its OP Units to any withheld if the general Agreement, until the transferee without the partner reasonably believes expiration of one year from consent of the general that the transfer violates the date on which a holder partner, which consent may applicable securities law or of Preferred OP Units be withheld in its sole and results in adverse tax acquired Preferred OP Units, absolute discretion. After consequences, including the subject to certain the expiration of one year, termination of your exceptions, such holder of such OP Unitholder has the partnership for tax Preferred OP Units may not right to transfer all or any purposes, (3) the assignee transfer all or any portion portion of its OP Units to has agreement to be bound by of its Preferred OP Units to any person, subject to the all of the terms of your any transferee without the satisfaction of certain con- partnership's agreement of consent of the general ditions specified in the limited partnership and partner, which consent may AIMCO Operating Partnership absolute discretion of the be withheld in its sole and Agreement, including the general partner has been absolute discretion. After general partner's right of granted, (4) the assignee the expiration of one year, first refusal. See represents he is at least 18 such holders of Preferred OP "Description of OP Units -- years of age, is a citizen Units has the right to Transfers and Withdrawals" and resident of the U.S., transfer all or any portion in the accompanying has sufficient financial of its Preferred OP Units to Prospectus. resources to maintain the any person, subject to the interest acquired and that satisfaction of certain After the first anniversary he is not acquiring the conditions specified in the of becoming a holder of interest with a view to AIMCO Operating Partner- Common OP Units, an OP resell the interest and (5) ship Agreement, including Unitholder has the right, the assignor and assignee the general partner's right subject to the terms and have complied with such of first refusal. conditions of the AIMCO other conditions as set Oper- forth in
S-83 5985 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership's agreement ating Partnership Agreement, of limited partnership. After a one-year holding to require the AIMCO period, a holder may redeem Operating Partnership to There are no redemption Preferred OP Units and redeem all or a portion of rights associated with your receive in exchange the Common OP Units held by units. therefor, at the AIMCO Oper- such party in exchange for a ating Partnership's option, cash amount based on the (i) subject to the terms of value of shares of Class A any Senior Units (as defined Common Stock. See "Descrip- below), cash in an amount tion of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred Stock elect to cause AIMCO to of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-84 5986 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-85 5987 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-86 5988 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-87 5989 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-88 5990 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-89 5991 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-90 5992 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-91 5993 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-92 5994 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-93 5995 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $30,000 in 1996, $33,000 in 1997 and $20,490 in 1998. The property manager received management fees of $50,000 in 1996, $52,000 in 1997 and $53,662 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-94 5996 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $280,245 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total....................................................... $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-95 5997 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Woodmere Associates, L.P. at December 31, 1997 and 1996, and for the years then ended, as set forth in their report. We've included the financial statements of Woodmere Associates, L.P. in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-96 5998 WOODMERE ASSOCIATES, L.P. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- As of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations -- For the nine months ended September 30, 1998 and 1997 (unaudited)............. F-3 Condensed Statements of Cash Flows -- For the nine months ended September 30, 1998 and 1997 (unaudited)............. F-4 Note A -- Basis of Presentation (unaudited)................. F-4 Independent Auditors' Report................................ F-5 Balance Sheet -- As of December 31, 1997.................... F-6 Statements of Operations -- For the year ended December 31, 1997...................................................... F-7 Statement of Partners' Deficit -- For the year ended December 31, 1997......................................... F-8 Statement of Cash Flows -- For the year ended December 31, 1997...................................................... F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-14 Balance Sheet -- As of December 31, 1996.................... F-15 Statements of Operations -- For the year ended December 31, 1996...................................................... F-16 Statement of Partners' Deficit -- For the year ended December 31, 1996......................................... F-17 Statement of Cash Flows -- For the year ended December 31, 1996...................................................... F-18 Notes to Financial Statements............................... F-19
F-1 5999 WOODMERE ASSOCIATES, LP CONDENSED BALANCE SHEET SEPTEMBER 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 165,422 Receivables and Deposits.................................... 49,365 Restricted Escrows.......................................... 165,215 Other Assets................................................ 55,836 Investment Property: Land...................................................... $ 255,000 Building and related personal property.................... 4,467,940 ----------- 4,722,940 Less: Accumulated depreciation............................ (3,216,524) 1,506,416 ----------- ----------- Total Assets...................................... $ 1,942,254 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 64,623 Property Taxes Payable...................................... 59,681 Tenant Security Deposits.................................... 28,518 Notes Payable............................................... 2,869,708 Partners' Capital........................................... (1,080,276) ----------- Total Liabilities and Partners' Capital........... $ 1,942,254 ===========
See accompanying note. F-2 6000 WOODMERE ASSOCIATES, LP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $716,239 $734,822 Other Income.............................................. 60,803 44,899 -------- -------- Total Revenues:................................... 777,042 779,721 Expenses: Operating Expenses........................................ 374,016 349,454 General and Administrative Expenses....................... 30,412 22,291 Depreciation Expense...................................... 88,500 88,500 Interest Expense.......................................... 199,255 203,506 Property Tax Expense...................................... 59,681 54,726 -------- -------- Total Expenses:................................... 751,864 718,477 -------- -------- Net Income........................................ $ 25,178 $ 61,244 ======== ========
See accompanying note. F-3 6001 WOODMERE ASSOCIATES, LP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 -------------------- 1998 1997 --------- -------- Operating Activities: Net Income................................................ $ 25,178 $ 61,244 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation and Amortization............................. 115,472 114,574 Changes in accounts:...................................... -- -- Receivables and deposits and other assets................. 27,925 12,082 Accounts Payable and accrued expenses..................... 16,822 (32,152) --------- -------- Net cash provided by operating activities......... 185,397 155,748 --------- -------- Investing Activities Property improvements and replacements.................... (104,916) (68,779) Net (increase)/decrease in restricted escrows............. (5,215) (3,031) --------- -------- Net cash used in investing activities..................... (110,131) (71,810) --------- -------- Financing Activities Distributions to partners................................. -- -- Payments on mortgage...................................... (70,844) (66,021) --------- -------- Net cash used in financing activities..................... (70,844) (66,021) --------- -------- Net increase (decrease) in cash and cash equivalents..................................... 4,422 17,917 Cash and cash equivalents at beginning of year............ 161,000 145,000 --------- -------- Cash and cash equivalents at end of period........ $ 165,422 $162,917 ========= ========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Woodmere Associates, L.P. as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 6002 REPORT OF INDEPENDENT AUDITORS Members of the Partnership Woodmere Associates, L.P. We have audited the accompanying balance sheet of Woodmere Associates, L.P., as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woodmere Associates, L.P. at December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 9, 1998 Greenville, South Carolina F-5 6003 WOODMERE ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 161 Receivables and deposits.................................... 76 Restricted escrows.......................................... 160 Other assets................................................ 67 Investment property (Note B): Land...................................................... $ 255 Buildings and related personal property................... 4,363 ------- 4,618 Less accumulated depreciation............................. (3,128) 1,490 ------- ------- $ 1,954 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accrued taxes............................................. $ 76 Tenant security deposits.................................. 30 Other liabilities......................................... 30 Mortgage notes payable (Note B)........................... 2,923 Partners' deficit........................................... (1,105) ------- $ 1,954 =======
See accompanying notes. F-6 6004 WOODMERE ASSOCIATES, L.P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $ 992 Other income.............................................. 65 ------ 1,057 Expenses: Operating................................................. $482 General and administrative................................ 36 Depreciation.............................................. 118 Interest.................................................. 272 Property taxes............................................ 76 984 ---- ------ Net income.................................................. $ 73 ======
See accompanying notes. F-7 6005 WOODMERE ASSOCIATES, L.P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178) Net income................................................ 72 1 73 ------- ---- ------- Partners' deficit at December 31, 1997...................... $(1,078) $(27) $(1,105) ======= ==== =======
See accompanying notes. F-8 6006 WOODMERE ASSOCIATES, L.P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 73 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 118 Amortization of discounts and loan costs............... 36 Changes in assets and liabilities: Receivables and deposits............................. 4 Other assets......................................... (7) Accounts payable..................................... (25) Accrued taxes........................................ 7 Other liabilities.................................... 8 ----- Net cash provided by operating activities......... 214 ----- Cash flows from investing activities Property improvements and replacements.................... (105) Net deposits to restricted escrows........................ (5) ----- Net cash used in investing activities............. (110) ----- Cash flows from financing activities Payments on mortgage notes payable........................ (88) ----- Net increase in cash and cash equivalents......... 16 Cash and cash equivalents at December 31, 1996.............. 145 ----- Cash and cash equivalents at December 31, 1997.............. $ 161 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 236 =====
See accompanying notes. F-9 6007 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Woodmere Associates, L.P., is a Delaware limited partnership which began operations in 1985 with the purchase of an apartment complex in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates. Investment Property The investment property is recorded at the Partnership's acquisition cost. Buildings and related personal property are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partners. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash and Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all apartment lessees for the duration of the lease and includes the deposits in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrows -- Reserve Account At the time of the refinancing of the mortgage notes payable in 1992, the Reserve Escrow was established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary F-10 6008 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $150,000 in total. At December 31, 1997, the reserve account balance was approximately $160,000. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of approximately $123,000 were incurred which are being amortized on a straight-line basis over the life of the loans. Accumulated amortization as of December 31, 1997, is approximately $63,000. NOTE B -- MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows (dollar amounts in thousands):
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1997 -------- --------- -------- -------- --------- ------------ Woodmere Apartments: 1st mortgage............................. $26 7.6% 11/15/02 $2,417 $2,951 2nd mortgage............................. 1 7.6% 11/15/02 103 103 --- ------ $27 3,054 Less unamortized discounts at 8.76%........ (131) ------ $2,923 ======
Mortgages are collateralized by the related property and improvements of the Partnership. The Partnership exercised interest rate buy-down options when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to approximately $239,000 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1997, are as follows (in thousands): 1998........................................................ $ 95 1999........................................................ 103 2000........................................................ 111 2001........................................................ 119 2002........................................................ 2,626 ------ $3,054 ======
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $52 Reimbursements for services of affiliates................... 33
F-11 6009 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (In thousands)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Woodmere......................................... $3,054 $255 $3,886 $477 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED (In thousands)
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS ----------- ------ ----------- ------ ------------ -------- ------------ Woodmere........................ $ 255 $4,363 $4,618 $3,128 9/85 5-25 ====== ====== ====== ====== ===== =====
Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): INVESTMENT PROPERTY Balance at beginning of year................................ $4,513 Property improvements....................................... 105 ------ Balance at end of year...................................... $4,618 ======
ACCUMULATED DEPRECIATION Balance at beginning of year................................ $3,010 Property improvements....................................... 118 ------ Balance at end of year...................................... $3,128 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $4,618,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,031,000. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-12 6010 REPORT OF INDEPENDENT AUDITORS Members of the Partnership Woodmere Associates, L.P. We have audited the accompanying balance sheet of Woodmere Associates, L.P., as of December 31, 1996, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woodmere Associates, L.P. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 25, 1997 Greenville, South Carolina F-13 6011 WOODMERE ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 145 Restricted -- tenant security deposits.................... 30 Accounts receivable......................................... 7 Escrow for taxes............................................ 43 Restricted escrows.......................................... 155 Loan costs, net............................................. 73 Investment property (Note B): Land...................................................... $ 255 Buildings and related personal property................... 4,258 ------- 4,513 Less accumulated depreciation............................. (3,010) 1,503 ------- ------- $ 1,956 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 25 Accrued taxes............................................. 69 Tenant security deposits.................................. 30 Other liabilities......................................... 22 Mortgage notes payable (Note B)........................... 2,988 Partners' deficit........................................... (1,178) ------- $ 1,956 =======
See accompanying notes. F-14 6012 WOODMERE ASSOCIATES, L.P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $ 932 Other income.............................................. 81 ------ 1,013 Expenses: Operating................................................. $381 General and administrative................................ 10 Maintenance............................................... 173 Depreciation.............................................. 104 Interest.................................................. 277 Property taxes............................................ 69 1,014 ---- ------ Net loss.................................................... $ (1) ======
See accompanying notes. F-15 6013 WOODMERE ASSOCIATES, L.P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1995...................... $(1,099) $(27) $(1,126) Net loss.................................................. (1) -- (1) Distributions............................................. (50) (1) (51) ------- ---- ------- Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178) ======= ==== =======
See accompanying notes. F-16 6014 WOODMERE ASSOCIATES, L.P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net (loss)................................................ $ (1) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation........................................... 104 Amortization of discounts and loan costs............... 35 Changes in assets and liabilities: Restricted cash -- tenant security deposits.......... (1) Accounts receivable.................................. (5) Escrow for taxes..................................... 13 Accounts payable..................................... 20 Tenant security deposit liabilities.................. 2 Accrued taxes........................................ 8 Other liabilities.................................... (34) ----- Net cash provided by operating activities......... 141 ----- Cash flows from investing activities Property improvements and replacements.................... (103) Deposits to restricted escrows............................ (4) Receipts from restricted escrows.......................... 18 ----- Net cash used in investing activities............. (89) ----- Cash flows from financing activities Payments on mortgage notes payable........................ (82) Partners' distributions................................... (51) ----- Net cash used in financing activities............. (133) ----- Decrease in cash............................................ (81) Unrestricted cash at December 31, 1995...................... 226 ----- Unrestricted cash at December 31, 1996...................... $ 145 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 242 =====
See accompanying notes. F-17 6015 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Woodmere Associates, L.P., is a Delaware limited partnership which began operations in 1985 with the purchase of an apartment complex in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates. Investment Property The investment property is recorded at the Partnership's acquisition cost. In 1995 the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Buildings and related personal property are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practical to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership (Note B). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partners. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. F-18 6016 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents -- Unrestricted Cash It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all apartment lessees for the duration of the lease and consider the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Restricted Escrows -- Reserve Account At the time of the refinancing of the mortgage notes payable in 1992, the Reserve Escrow was established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $150,000 in total. At December 31, 1996, the reserve account balance was $153,000. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $123,000 were incurred which are being amortized on a straight-line basis over the life of the loans. Accumulated amortization as of December 31, 1996 is $50,000. NOTE B -- MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows (dollar amounts in thousands):
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1996 -------- --------- -------- -------- --------- ------------ Woodmere Apartments: 1st mortgage............................. $26 7.6% 11/15/02 $2,417 $3,039 2nd mortgage............................. 1 7.6% 11/15/02 103 103 --- ------ $27 3,142 Less unamortized discounts at 8.76%........ (154) ------ $2,988 ======
Mortgages are collateralized by the related property and improvements of the Partnership. The Partnership exercised interest rate buy-down options when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $239,000 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The carrying value of the mortgage notes payable approximates its estimated fair value at December 31, 1996. F-19 6017 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows (in thousands): 1997........................................................ $ 88 1998........................................................ 95 1999........................................................ 103 2000........................................................ 111 2001........................................................ 119 Thereafter.................................................. 2,626 ------ $3,142 ======
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $50 Reimbursements for services of affiliates................... 30
NOTE D -- FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Woodmere Apartments........................... $2,987 $255 $3,886 $372 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ---- ----------- ------ ------------ -------- ------------- Woodmere........................ $255 $4,258 $4,513 $3,010 9/85 5-25 ==== ====== ====== ======
Reconciliation of "Fixed Assets and Accumulated Depreciation": FIXED ASSETS Balance at beginning of year................................ $4,410 Property improvements....................................... 103 ------ Balance at end of year...................................... $4,513 ====== ACCUMULATED DEPRECIATION Balance at beginning of year................................ $2,906 Additions charged to expense................................ 104 ------ Balance at end of year...................................... $3,010 ======
F-20 6018 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is $4,513,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is $2,827,000. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-21 6019 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 6020 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 6021 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 6022 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 6023 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 6024 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 6025 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 6026 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 6027 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 6028 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 6029 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 6030 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 6031 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 6032 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 6033 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 6034 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 6035 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 6036 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 6037 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 6038 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 6039 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 6040 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 6041 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 6042 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 6043 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Re presents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 6044 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 6045 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 6046
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii)Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 6047 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 6048
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii)Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii)Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 6049 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 6050 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 6051 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 6052
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 6053 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 6054 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 6055 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 6056
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 6057 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 6058 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 6059 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 6060 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 6061 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 6062 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 6063 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 6064 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 6065 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 6066 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 6067 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 6068 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 6069 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Woodmere Associates, L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Woodmere Associates, L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $21,980 in cash, or 568.25 Common OP Units of the Purchaser, or 879.25 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 6070 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 6071 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 6072 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 6073
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 6074
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 6075
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 6076
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 6077 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 6078 SUBJECT TO COMPLETION, DATED MARCH 12, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH , 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Yorktown Towers Associates in exchange for your choice of: 1,220.75 of our 8.0% Class Two Partnership Preferred Units; 788.75 of our Partnership Common Units; or $30,516 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 25% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer and your withdrawal rights will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $30,516 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your partnership currently owns one property. We cannot predict when the property may be sold. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership was liquidated. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit, and therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - It is possible that we may conduct a subsequent offer at a higher price more than one year after this offer. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March , 1999 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 6079 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-5 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-10 Your Partnership............................. S-11 The Offer.................................... S-12 Terms of the Offer........................... S-12 Certain Federal Income Tax Consequences...... S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-15 Summary Financial Information of AIMCO Properties, L.P............................ S-16 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-18 Summary Financial Information of Yorktown Towers Associates.......................... S-20 Comparative Per Unit Data.................... S-20 THE AIMCO OPERATING PARTNERSHIP................ S-21 RISK FACTORS................................... S-22 Risks to Unitholders Who Tender Their Units in the Offer............................... S-22 No Third Party Valuation or Appraisal; No Arms-Length Negotiation and No General Partner Recommendation................... S-22 Offer Consideration May Not Equal the Value of Your Units............................ S-22 Conflicts of Interest with Respect to the Offer.................................... S-22 Possible Subsequent Offer at a Higher Price.................................... S-22 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-22 Holding Units May Result in Greater Future Value.................................... S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Fairness Opinion of Third Party Relied on Information We Provided.................. S-23 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-24 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-24 Fundamental Change in Nature of Investment............................... S-24 Fundamental Change in Number of Properties Owned.................................... S-24 Lack of Trading Market for OP Units........ S-24 Uncertain Future Distributions............. S-24 Possible Reduction in Required Distributions on Preferred OP Units...... S-24 Possible Lower Distributions............... S-24 Possible Redemption of Preferred Stock..... S-25 Possible Recognition of Taxable Gains on OP Units.................................... S-25 Limitations on Effecting a Change of Control.................................. S-25 Limitation on Transfer of OP Units......... S-25 Limited Voting Rights of Holders of OP Units.................................... S-25 Market Prices for AIMCO's Securities May Fluctuate................................ S-25 Litigation Associated with Partnership Acquisitions............................. S-25
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-25 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-26 Possible Increase in Control of Your Partnership by Us........................ S-26 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-26 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-26 Risk of Inability to Transfer Units for 12-Month Period.......................... S-26 Possible Change in Time Frame Regarding Sale of Property......................... S-26 SPECIAL FACTORS TO CONSIDER.................... S-27 BACKGROUND AND REASONS FOR THE OFFER........... S-27 Background of the Offer...................... S-27 Alternatives Considered...................... S-29 Expected Benefits of the Offer............... S-30 Disadvantages of the Offer................... S-31 VALUATION OF UNITS............................. S-32 FAIRNESS OF THE OFFER.......................... S-34 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-34 Fairness to Unitholders who Tender their Units...................................... S-35 Fairness to Unitholders who do not Tender their Units................................ S-36 Comparison of Consideration to Alternative Consideration.............................. S-36 Allocation of Consideration.................. S-39 STANGER ANALYSIS............................... S-39 Experience of Stanger........................ S-40 Summary of Materials Considered.............. S-40 Summary of Reviews........................... S-41 Conclusions.................................. S-43 Assumptions, Limitations and Qualifications............................. S-43 Compensation and Material Relationships...... S-44 YOUR PARTNERSHIP............................... S-45 General...................................... S-45 Your Partnership and its Property............ S-45 Property Management.......................... S-45 Investment Objectives and Policies; Sale or Financing of Investments................... S-46 Capital Replacement.......................... S-46 Borrowing Policies........................... S-46 Competition.................................. S-47 Legal Proceedings............................ S-47 History of the Partnership................... S-47 Fiduciary Responsibility of the General Partner of Your Partnership................ S-47 Distributions and Transfers of Units......... S-48 Beneficial Ownership of Interests in Your Partnership................................ S-48 Compensation Paid to the General Partner and its Affiliates............................. S-49 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-51 THE OFFER...................................... S-54 Terms of the Offer; Expiration Date.......... S-54 Acceptance for Payment and Payment for Units...................................... S-54 Procedure for Tendering Units................ S-55 Withdrawal Rights............................ S-58 Extension of Tender Period; Termination; Amendment.................................. S-58
i 6080
PAGE ----- Proration.................................... S-59 Fractional OP Units.......................... S-59 Future Plans of the AIMCO Operating Partnership................................ S-59 Voting by the AIMCO Operating Partnership.... S-60 Dissenters' Rights........................... S-60 Conditions of the Offer...................... S-60 Effects of the Offer......................... S-63 Certain Legal Matters........................ S-63 Fees and Expenses............................ S-65 Accounting Treatment......................... S-65 CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ S-66 Tax Consequences of Exchanging Units Solely for OP Units............................... S-66 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-67 Tax Consequences of Exchanging Units Solely for Cash................................... S-67 Disguised Sale Treatment..................... S-67 Adjusted Tax Basis........................... S-68 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-68 Passive Activity Losses...................... S-68 Tax Reporting................................ S-69 Foreign Offerees............................. S-69 Certain Tax Consequences to Non-Tendering and Partially-Tendering Offerees............... S-69 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-71 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-78 DESCRIPTION OF PREFERRED OP UNITS.............. S-84 General...................................... S-84 Ranking...................................... S-84
PAGE ----- Distributions................................ S-84 Allocation................................... S-85 Liquidation Preference....................... S-85 Redemption................................... S-86 Voting Rights................................ S-86 Restrictions on Transfer..................... S-87 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-87 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-89 CONFLICTS OF INTEREST.......................... S-93 Conflicts of Interest with Respect to the Offer...................................... S-93 Conflicts of Interest that Currently Exist for Your Partnership....................... S-93 Competition Among Properties................. S-93 Features Discouraging Potential Takeovers.... S-93 Future Exchange Offers....................... S-93 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-94 LEGAL MATTERS.................................. S-95 EXPERTS........................................ S-95 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 6081 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Generally, when we refer to "we," "us" or the "Company" in this prospectus supplement, we are referring to AIMCO and the AIMCO Operating Partnership. The AIMCO Operating Partnership's Partnership Common Units are sometimes referred to herein as the "Common OP Units" and its Class Two Partnership Preferred Units are referred to herein as the "Preferred OP Units." The Common OP Units and the Preferred OP Units are collectively referred to herein as the "OP Units." Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, MAERIL, Inc., and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-22 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $17,400,000, less approximately $2,181,040 deferred maintenance and investment. It is possible that the sale of the property could result in you receiving more per unit than in our offer. S-1 6082 CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer S-2 6083 consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2050 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This is equivalent to distributions of $2,441.50 per year on the number of Preferred OP Units, or distributions of $1,971.88 per year on the number of Common OP Units, that you would receive in exchange for each of your S-3 6084 partnership's units. During 1998, your partnership paid cash distributions of $3,443 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-4 6085 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership and, in fact, may be able to control any vote of the limited partners. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $11,965,357 of balloon payments due on its mortgage debt in October, 2001. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. S-5 6086 On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in October, 2001 and require balloon payments of $11,965,357. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell its property or refinance its indebtedness to pay such balloon payments. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. S-6 6087 There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,443 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $1,220.75 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,443 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,971.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer. The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the S-7 6088 securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. For a description of certain risks of our offer, see "Risk Factors." S-8 6089 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.30%, resulting in a final capitalization rate of 8.95%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Net operating income........................................ $ 1,557,000 Capitalization rate......................................... 8.95% ------------ Gross valuation of partnership properties................... $ 17,400,000 Plus: Cash and cash equivalents............................. 1,027,317 Plus: Other partnership assets, net of security deposits.... 467,385 Less: Mortgage debt, including accrued interest............. (12,445,257) Less: Accounts payable and accrued expenses................. (464,443) Less: Other liabilities..................................... (134,265) ------------ Partnership valuation before taxes and certain costs........ 5,850,737 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (2,181,040) Less: Closing costs......................................... (435,000) ------------ Estimated net valuation of your partnership................. 3,234,697 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ------------ Estimated net valuation of units............................ 3,234,697 Total number of units............................. 106.0 ------------ Estimated valuation per unit................................ 30,516 ============ Cash consideration per unit................................. $ 30,516 ============
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $30,516 by the $25 liquidation preference of each Preferred OP Unit to get 1,220.75 Preferred OP Units per unit. In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $30,516 by a price of $38.69 to get 788.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. S-9 6090 FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership. The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT -------- Cash offer consideration.................................... $ 30,516 Partnership Preferred Units................................. $ 30,516 Partnership Common Units.................................... $ 30,516 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 30,516 Estimated going concern value............................. $ 9,445 Alternative going concern value(1)........................ $ 15,524 Net book value (deficit).................................. $(18,075)
- --------------- (1) Assumes sale of property when balloon payment is due instead of refinancing the mortgage. STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A S-10 6091 and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Yorktown Towers Associates is an Illinois limited partnership which was formed on October 16, 1981 for the purpose of owning and operating a single apartment property located in Lombard, Illinois, known as "Yorktown Apartments -- #333." Your partnership's property consists of 368 units and was built in 1973. Your partnership has no employees. As of September 30, 1998, there were 106 units of limited partnership interest issued and outstanding, which were held of record by 56 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold $5,300,000 of limited partnership units in 1981. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $3,443 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Your partnership will terminate on December 31, 2050, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $12,302,549, payable to LP Commercial Conduit Mfg. Trust, which bears interest at the rate of 9.84%. The mortgage debt is due in October, 2001. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-11 6092 THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,220.75 of our Class Two Partnership Preferred Units; - 788.75 of our Partnership Common Units; or - $30,516 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept all of the outstanding units tendered in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on May , 1999, unless we extend the deadline. TERMS OF THE OFFER General. We are offering to acquire up to 25% of the outstanding 106 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 1,220.75 Preferred OP Units, 788.75 Common OP Units, or $30,516 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on May , 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 25% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer, and unless already accepted for payment as provided for herein, you may withdraw your tender of units, pursuant to the offer on and after , 1999. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. S-12 6093 Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. Effects of the Offer. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence or control voting decisions with respect to your partnership. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the S-13 6094 February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. CERTAIN FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of March 3, 1999, the AIMCO Operating Partnership had approximately 66,638,534 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $30,516 in cash, 1,220.75 Preferred OP Units or 788.75 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred S-14 6095 Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $30,516. CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $35,001 for the fiscal year ended December 31, 1998. The property manager received management fees of $191,780 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. If the results of operations were to improve for your partnership under our management, we might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after this offer. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $808,674 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-15 6096 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-16 6097
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P.'S PREDECESSORS(A) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-17 6098 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-18 6099
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-19 6100 SUMMARY FINANCIAL INFORMATION OF YORKTOWN TOWERS ASSOCIATES The summary financial information of Yorktown Towers Associates for the nine months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Yorktown Towers Associates for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on audited financial statements. The financial statements for 1995, 1994 and 1993 are not included in this Prospectus Supplement. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of your Partnership" included herein. See "Index to Financial Statements."
YORKTOWN TOWERS ASSOCIATES ----------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total Revenues............... $ 2,943 $ 2,587 $ 3,769 $ 3,895 $ 3,734 $ 3,594 $ 3,538 Net Income/(Loss)............ 189 (285) (272) (75) 24 94 (298) Net Income per limited partnership unit........... 1,836.92 (2,744.98) (2,614.37) (720.87) 231.88 908.26 (2,862.62) Distributions per limited partnership unit........... 3,508.25 -- -- -- -- -- -- Distributions per limited partnership unit (which represent a return of capital)................... -- -- -- -- -- -- --
SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Cash and Cash Equivalents.... $ 1,434 $ 767 $ 1,405 $ 626 $ 542 $ 1,004 $ 395 Real Estate, Net of Accumulated Depreciation... 8,735 9,126 9,034 9,454 9,818 10,157 10,492 Total Assets................. 10,802 11,105 11,205 11,656 11,838 12,517 11,874 Notes Payable................ 12,320 12,416 12,393 12,483 12,564 13,357 12,059 General Partners' Capital/(Deficit)............ (46) (48) (48) (45) (44) (44) (44) Limited Partners' Capital/(Deficit)............ (2,045) (1,881) (1,868) (1,599) (1,525) (1,548) (1,642) Partners' Capital/(Deficit).... (2,091) (1,929) (1,916) (1,644) (1,569) (1,593) (1,686) Total Distributions............ 365 -- -- -- -- -- -- Book value per limited partnership unit............. (19,857.63) (18,264.79) (18,135.92) (15,524.27) (14,801.40) (15,033.28) (15,941.54) Net increase (decrease) in cash and cash equivalents......... 29 141 779 84 (462) 609 182 Net cash provided by operating activities................... $ 603 $ 14 $ 722 $ 315 $ 317 $ 89 $ 205 Ratio of earnings to fixed charges...................... 1.21/1 0.69/1 0.79/1 0.94/1 0.83/1 0.86/1 0.77/1
COMPARATIVE PER UNIT DATA Set forth below are cash distributions for OP Units and historical cash distributions per unit of your partnership.
AIMCO YORKTOWN OPERATING TOWERS PARTNERSHIP ASSOCIATES ------------ ------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1998 ------------ ------------ Equivalent cash distributions on the number of Common OP Units issuable in the offer for each unit of your partnership............................................... $1,971.88 $3,443 Equivalent cash distributions on the number of Preferred OP Units issuable in the offer for each unit of your partnership............................................... $2,441.50 $3,443
S-20 6101 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 5, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $37.50. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 5)......... $41 5/8 $36 1/8 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-21 6102 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO GENERAL PARTNER RECOMMENDATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT EQUAL THE VALUE OF YOUR UNITS. We estimate your property to be worth $17,400,000, less approximately $2,181,040 of deferred maintenance and investment not considered by the appraiser. It is possible, that the sale of the property could result in you receiving more pretax cash per unit than our offer. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. The conflict results from the fact that we determined the offer consideration without negotiating with any other party. We did not consult with or negotiate with the general partner or any limited partner. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. Since our affiliates receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the Preferred OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss on such S-22 6103 disguised sale. See "Certain Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. This summary is a general discussion of certain of the anticipated Federal income tax consequences of the offer. This summary does not discuss all aspects of Federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the Internal Revenue Code of 1986, as amended. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Certain Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. However, the offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than the offer consideration. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership on a prompt basis. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property. In doing so, we applied a capitalization rate to your partnership's net operating income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If net operating income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. The actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. Accordingly, our offer consideration could be less than the net proceeds that you would realize upon an actual liquidation of your partnership. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. S-23 6104 LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of December 31, 2050 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE LOWER DISTRIBUTIONS. The Preferred OP Units provide for annual distributions of $2.00 per unit and no more. Current annualized distributions with respect to the Common OP Units are $2.50 per unit. This S-24 6105 is equivalent to distributions of $2,441.50 per year on the number of Preferred OP Units, or distributions of $1,971.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. During 1998, your partnership paid cash distributions of 3,508.25 per unit. Therefore, distributions with respect to the Preferred OP Units and Common OP Units may be substantially less, immediately following our offer, than the distributions with respect to your units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are certain tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgement if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the S-25 6106 holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership and may control such voting decisions. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $11,965,357 of balloon payments due on its mortgage debt in October, 2001. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-26 6107 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest, consisting of a 0% limited partnership interest and a 1% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership has made offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-27 6108 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-28 6109 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has increased from $-285,589 for the nine months ended September 30, 1997, to $189,203 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete capital expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due on October, 2001 and require balloon payments totaling $11,965,357. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis but will have to sell the properties or refinance its indebtedness in 2001 to pay such balloon payments. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing some or all of your partnership's properties; making an offer of only cash for your units; making an S-29 6110 offer of only Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's properties, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's properties, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-30 6111 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid distributions of $3,443 for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $2,441.50 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid distributions of $3,443 for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $1,971.88 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-31 6112 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." For a description of certain risks of our offer, see "Risk Factors." VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to the property's annual net operating income. We used your partnership's net operating income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the property's net operating income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition B (good). Generally, we assign an initial capitalization rate of 10.25% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. We also considered any changes in your property's net operating income from 1997 to 1998. Because your property's net operating income in 1998 increased compared to 1997, we further revised the capitalization rate downward by approximately 1.30%, resulting in a final capitalization rate of 8.95%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (net operating income less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms- S-32 6113 length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each property's fiscal 1997 net operating income by its capitalization rate to derive an estimated gross property value as described in the following table:
ESTIMATED FISCAL 1997 NET CAPITALIZATION GROSS PROPERTY PROPERTY OPERATING INCOME(1) RATE VALUE -------- ------------------- -------------- -------------- Yorktown Apartments -- #333 $1,556,708 8.95% $17,400,000 ----------- Estimated Total Gross Property Value $17,400,000
- --------------- (1) The total net operating income is equal to total revenues of $3,697,490, less total expenses of $2,030,382 and recurring replacement costs of $110,400. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $3,234,697. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Net operating income........................................ $ 1,557,000 Capitalization rate......................................... 8.95% ------------ Gross valuation of partnership properties................... 17,400,000 Plus: Cash and cash equivalents............................. 1,027,317 Plus: Other partnership assets, net of security deposits.... 467,385 Less: Mortgage debt, including accrued interest............. (12,445,257) Less: Accounts payable and accrued expenses................. (464,443) Less: Other liabilities..................................... (134,265) ------------ Partnership valuation before taxes and certain costs........ 5,850,737 Less: Disposition fees...................................... 0 Less: Extraordinary capital expenditures and deferred maintenance............................................... (2,181,040) Less: Closing costs......................................... (435,000) ------------ Estimated net valuation of your partnership................. 3,234,697 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ------------ Estimated net valuation of units............................ 3,234,697 Total number of units............................. 106.0 ------------ Estimated valuation per unit................................ 30,516 ============ Cash consideration per unit................................. $ 30,516 ============
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $30,516 by the $25 liquidation preference of each Preferred OP Unit to get 1,220.75 Preferred OP Units per unit. S-33 6114 - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $30,516 by a price of $38.69 to get 788.75 Common OP Units per unit. The closing price of AIMCO's Class A Common Stock on the NYSE on March 5, 1999 was $37.50. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $3,234,697 or .57% is the net valuation of your partnership. FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer and has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has increased from a loss of $285,000 for the nine months ended September 30, 1997 to net income of $189,000 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. S-34 6115 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $30,516, based on a total estimated value of your partnership's property of $17,400,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $2,441.50 per year on the number of Preferred OP Units, or distributions of $1,971.88 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. Distributions with respect to your units for the fiscal year ended December 31, 1998 were $3,443. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive S-35 6116 if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) the prices at which the units have been sold in the illiquid secondary market, if available; (b) estimates of the value of the units on a liquidation basis; (c) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (d) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by your general partner (which is our subsidiary) and others. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-36 6117 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2050, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT -------- Cash offer price............................................ $ 30,516 Partnership preferred units................................. $ 30,516 (1 Partnership common units.................................... $ 30,516 (1 Alternatives: Prices on secondary market................................ Not available Estimated liquidation proceeds............................ $ 30,516 Estimated going concern value............................. $ 9,445 Net book value (deficit).................................. $(18,075) Alternative going concern value........................... $ 15,524 (2
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes sale of property when balloon payment is due instead of refinancing partnership's indebtedness. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or S-37 6118 distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 30%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 2.5% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $9,445 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. Your partnership's property currently has balloon payments due in October, 2001. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property, the alternative going concern value of $15,524 is based on selling the property when the balloon payment is due. For the reasons set forth above, we believe the offer consideration is fair in relationship to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book deficit per unit is $18,075.47 and is substantially below the offer price. Net book value would not be a fair price to offer since it does not reflect market values for the apartments but original costs less depreciation. S-38 6119 Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $27,975 per unit, going concern value of $15,809 per unit and liquidation value of $23,812 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with the cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represents premiums (discounts) to the offer price of $(2,541), $(14,707) and $(6,704). In light of these premiums (discounts) and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION We have allocated the estimated liquidation proceeds in accordance with the liquidation provisions of your partnership agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Since the allocation was made in accordance with the terms of such partnership agreement, we believe the allocation is fair. See "Valuation of Units." STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations S-39 6120 and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's audited financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS Total Revenues.............................................. $ 3,865,516 Operating Expenses.......................................... (1,788,549) Replacement Reserves -- Net................................. (192,381) Debt Service................................................ (1,314,242) Capital Expenditures........................................ (70,500) ----------- Net Cash Flow..................................... $ 499,844 ===========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to S-40 6121 the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. S-41 6122 Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at a capitalization rate of 8,95%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $2,181,040. Stanger observed that your partnership liquidation value of $3,234,697 was divided by the total units outstanding of 106 to provide the liquidation value per unit of $30,516. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one net operating income from the real estate portfolio of $1,557,000 escalated at 3% per annum for the ten-year projection period. Net operating income was reduced by: (i) partnership administrative expenses of $60,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) net operating income for the immediately following year capitalized at a capitalization rate of 9.45%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 30%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 11.4%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 106 to achieve management's estimate of going concern value of $9,445 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $30,516 per unit is equal to management's estimate of liquidation value, and reflects a 21.071% premium to management's estimate of going concern value of $9,445. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $38.69 per unit, an amount which equals a recent closing price for the common shares into which such Common OP Units are convertible. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing in the third year following the closing of the transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten-day average closing price of the AIMCO common stock is $38.48, as of March 5, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive .6497 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's average common share price as of March 5, 1999. Stanger noted that commencing in the third S-42 6123 year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 5, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 5, 1999, investors would receive Preferred Shares with a value of approximately $19.67 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 9.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 10%. Stanger advised us that Stanger adjusted its estimate of net asset value and liquidation value for the cost of above market debt using a 7% interest rate. Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 30%% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 30% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (12% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 70% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $27,975, $15,809, and $23,812 representing premiums (discounts) to the offer price of (8.3)%, (48)% and 22%. See "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary), and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also S-43 6124 relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed S-44 6125 transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. YOUR PARTNERSHIP GENERAL Yorktown Towers Associates, is an Illinois limited partnership which completed a private offering in 1981. Insignia acquired the general partner of your partnership in December, 1993. AIMCO acquired Insignia in October 1998. There are currently a total of 56 limited partners of your partnership and a total of 106 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 16, 1981 for the purpose of owning an apartment property located in Lombard, Illinois, known as "Yorktown Apartments -- #333." Your partnership's property is owned by the partnership but is subject to a mortgage. The property was built in 1973 and consists of 368 apartment units. Your partnership's property had an average occupancy rate of approximately 87.80% in 1997 and 96.70% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $2,181,040 and are intended to be paid for out of cash flow or borrowings. Renovation items include roofing, heating, ventilation and air conditioning systems, plumbing, electrical, siding trim facia, exterior painting, stairwells, sidewalks, drives and parking lot, windows, landscape and irrigation, parking, life support systems and elevators. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 - ---- ---- ---- ---- ---- $793 $812 $779 $751 $744
The apartments are being depreciated for federal income tax purposes using the acceleration cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $424,380 of $6,398,020 of assessed valuation with a current yearly tax rate of 6.63%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 6.96% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. S-45 6126 INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2050 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to [improve/remain strong] in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 94% and $814, respectively, at December 31, 1998, compared to 88% and $793, respectively, at December 31, 1997. Although there can be no assurance as to future performance, the general partner expects occupancy to remain strong in the near future. In addition, the general partner noted that it expects to spend approximately $2,181,040 for capital replacements and improvements at the property in 1999 to update and improve the property's clubhouse, exercise room, to replace the roof, and to continue the apartment upgrade plan. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." S-46 6127 BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $12,302,549, payable to LP Commercial Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due in October 2001. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $5,300,000 of limited partnership units in 1981. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2050, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners will not liable to your partnership or limited partners because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." Your partnership will indemnify and hold harmless the general partners from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith and in accordance with sound business practices and the terms of your partnership's agreement of limited partnership, including without limitation, reasonable costs and expenses of litigation and appeal (including reasonable fees and expenses of attorneys engaged by the general partners in defense of such act or omission) but the general S-47 6128 partners will not be entitled to be indemnified or held harmless due to, or arising from, their fraud, bad faith, gross negligence or malfeasance. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. The original cost per unit was $50,000.
TO THE AIMCO OPERATING PARTNERSHIP AND AFFILIATES PRO FORMA AS --------------------------------------- LIMITED YEAR ENDED DECEMBER 31 AMOUNT AS GENERAL PARTNER AS LIMITED PARTNER PARTNER(1) ---------------------- ------ ------------------ ------------------ ------------ 1993................................... $ 0 $0 $0 $ 0 1994................................... 0 0 0 0 1995................................... 0 0 0 0 1996................................... 0 0 0 0 1997................................... 0 0 0 0 1998................................... 3,443 0 0 91,250 ------ -- -- ------- Total........................ $3,443 $0 $0 $91,250 ====== == == =======
- --------------- (1) Total distributions to the AIMCO Operating Partnership, as limited partner if all units sought in the offer were acquired at the beginning of each period. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL NUMBER OF YEAR TRANSFERRED UNITS OUTSTANDING TRANSACTIONS - ---------------------------------------- --- ---- -- 1994.................................... 0 0 0 1995.................................... 0 0 0 1996.................................... 0 0 0 1997.................................... 0 0 0 1998.................................... 0.5 1.01% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 1% interest in your partnership, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any S-48 6129 contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES Your general partner (which is our affiliate) received total compensation (which includes all monies paid to the general partner by your partnership including reimbursement for expenses) in respect of its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION ---- ------------ 1994........................................................ Unavailable 1995........................................................ $ 92,702 1996........................................................ 62,000 1997........................................................ 61,000 1998........................................................ 73,000
In addition, a majority-owned subsidiary of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR FEES ---- -------- 1995........................................................ $ 66,000 1996........................................................ 92,000 1997........................................................ 144,000 1998........................................................ 191,780
If the offer had been made in such prior periods, there would not have been any material difference in the compensation that would have been paid to your general partner (which is our affiliate), or the compensation paid to the property manager or AIMCO and its affiliates. S-49 6130 SELECTED FINANCIAL INFORMATION OF YORKTOWN TOWERS ASSOCIATES Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. You are urged to read the Financial Statements carefully before making any decision whether to tender your units in the offer. Below is selected financial information for Yorktown Towers Associates taken from the financial statements described above. The amounts for 1995, 1994 and 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements." YORKTOWN TOWERS ASSOCIATES Selected Financial Information
YORKTOWN TOWERS ASSOCIATES ------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ---------------------- ------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 --------- ---------- ---------- -------- ------- ------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Cash and Cash Equivalents.................... $ 1,434 $ 767 $ 1,405 $ 626 $ 542 $ 1,004 $ 395 Land & Building.............................. 17,731 17,565 17,601 17,463 17,240 17,034 16,845 Accumulated Depreciation..................... (8,996) (8,439) (8,567) (8,009) (7,422) (6,877) (6,353) Other Assets................................. 633 1,212 766 1,576 1,478 1,356 987 --------- ---------- ---------- -------- ------- ------- ---------- Total Assets......................... $ 10,802 $ 11,105 $ 11,205 $ 11,656 $11,838 $12,517 $ 11,874 ========= ========== ========== ======== ======= ======= ========== Notes Payable................................ $ 12,320 $ 12,416 $ 12,393 $ 12,483 $12,564 $13,357 $ 12,059 Other Liabilities............................ 573 618 728 817 843 753 1,501 --------- ---------- ---------- -------- ------- ------- ---------- Total Liabilities.................... $ 12,893 $ 13,034 $ 13,121 $ 13,300 $13,407 $14,110 $ 13,560 --------- ---------- ---------- -------- ------- ------- ---------- Partners' Deficit............................ $ (2,091) $ (1,929) $ (1,916) $ (1,644) $(1,569) $(1,593) $ (1,686) ========= ========== ========== ======== ======= ======= ==========
YORKTOWN TOWERS ASSOCIATES ------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, ---------------------- ------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 --------- ---------- ---------- -------- ------- ------- ---------- (IN THOUSANDS, EXCEPT PER UNIT DATA) Rental Revenue............................... $ 2,729 $ 2,397 $ 3,500 $ 3,587 $ 3,439 $ 3,317 $ 3,284 Other Income................................. 214 190 269 308 295 277 254 --------- ---------- ---------- -------- ------- ------- ---------- Total Revenue........................ $ 2,943 $ 2,587 $ 3,769 $ 3,895 $ 3,734 $ 3,594 $ 3,538 --------- ---------- ---------- -------- ------- ------- ---------- Operating Expenses........................... $ 1,011 $ 1,115 $ 1,642 $ 1,591 $ 1,569 $ 1,456 $ 1,512 General & Administrative..................... 62 66 92 71 111 107 104 Depreciation................................. 429 429 572 587 545 524 502 Interest Expense............................. 913 919 1,302 1,316 1,323 1,308 1,316 Property Taxes............................... 339 343 433 405 416 384 402 --------- ---------- ---------- -------- ------- ------- ---------- Total Expenses....................... $ 2,754 $ 2,872 $ 4,041 $ 3,970 $ 3,964 $ 3,779 $ 3,836 --------- ---------- ---------- -------- ------- ------- ---------- Net Income (loss) before extraordinary items...................................... $ 189 $ (285) $ (272) $ (75) $ (230) (185) $ (298) Extraordinary Items.......................... -- -- -- -- 254 279 -- --------- ---------- ---------- -------- ------- ------- ---------- Net Income (loss)............................ $ 189 $ (285) $ (272) $ (75) $ 24 $ 94 $ (298) ========= ========== ========== ======== ======= ======= ========== Net Income per limited partnership unit...... $1,836.92 $(2,744.98) $(2,614.37) $(720.87) $231.88 $908.26 $(2,862.62) ========= ========== ========== ======== ======= ======= ========== Distributions per limited partnership unit... $3,508.25 $ -- $ -- $ -- $ -- $ -- $ -- ========= ========== ========== ======== ======= ======= ==========
S-50 6131 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP OVERVIEW The following discussion and analysis of the results of operations and financial condition of Your Partnership should be read in conjunction with the audited financial statements of Your Partnership included herein. RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your Partnership recognized net income of $189,000 for the nine months ended September 30, 1998, compared to a net loss of $285,000 for the nine months ended September 30, 1997. The increase in net income of $474,000 was primarily the result of an increase in rental revenues and other income, plus a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the Partnership Property totaled $2,943,000 for the nine months ended September 30, 1998, compared to $2,587,000 for the nine months ended September 30, 1997, an increase of $356,000, or 13.8%. The increase in revenues is due primarily to a 2% rental rate increase and an increase in occupancy to 94% for the nine months ended September 30, 1998 as compared to 87% for the nine months ended September 30, 1997. The increase in Other Income of $24,000 was due primarily to an increase in lease cancellation fees and laundry income. EXPENSES Partnership Property operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,011,000 for the nine months ended September 30, 1998, compared to $1,115,000 for the nine months ended September 30, 1997, a decrease of $104,000, or 9.3%. The decrease is due to lower corporate unit expense, employee apartments and lower vacant apartment utilities expense. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $62,000 for the nine months ended September 30, 1998, compared to $66,000 for the nine months ended September 30, 1997, a decrease of $4,000, or 6.0%. This decrease was primarily the result of decreased tax and license fees. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $913,000 for the nine months ended September 30, 1998, compared to $919,000 for the nine months ended September 30, 1997, a decrease of $6,000, or 0.7%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your Partnership recognized a net loss of $272,000 for the year ended December 31, 1997, compared to a net loss of $75,000 for the year ended December 31, 1996. The increase in the net loss of $197,000 was S-51 6132 primarily the result of a decrease in revenues and an increase in operating expenses, general and administrative expenses and property tax expense. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $3,769,000 for the year ended December 31, 1997, compared to $3,895,000 for the year ended December 31, 1996, a decrease of $126,000, or 3.2%. This decrease is due primarily to a 1% decrease in occupancy from 1997 to 1996. Additionally, other income decreased $39,000, or 12.6% from 1997 to 1996 due primarily to a reduction in corporate unit rentals of $69,000 offset by an increase in interest income and miscellaneous income. EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,642,000 for the year ended December 31, 1997, compared to $1,591,000 for the year ended December 31, 1996, an increase of $51,000 or 3.2%. The increase is primarily due to an increase in concessions of approximately $90,000 made during the year in an effort to improve occupancy, offset slightly by a reduction in maintenance costs. Property taxes increased $28,000 due to an increase in the assessed value for the property. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $92,000, an increase of $21,000 for the year ended December 31, 1997, compared to the prior year. This increase is due primarily to general increases in partnership administrative and management costs. DEPRECIATION EXPENSE Depreciation expense decreased $15,000 (2.5%) to $572,000 due primarily to some assets becoming fully depreciated during the year ended December 31, 1997. INTEREST EXPENSE Interest expense totaled $1,302,000 for the year ended December 31, 1997, compared to $1,316,000 for the year ended December 31, 1996, a decrease of $14,000, or 1.0 %. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your Partnership recognized a net loss of $75,000 for the year ended December 31, 1996, compared to net income of $24,000 for the year ended December 31, 1995. Net income in 1995, however, included an extraordinary gain of $254,000 realized on the forgiveness of debt; excluding this gain, the Partnership would have recognized a net loss of $230,000. The decrease in net operating loss of $155,000 was primarily the result of an increase in rental revenue and a decrease in general and administrative expense that offset increases in other costs. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $3,895,000 for the year ended December 31, 1996, compared to $3,734,000 for the year ended December 31, 1995, an increase of $161,000, or 4.3%. This increase is due primarily to an increase in rental rates and occupancy. Other income increased $13,000, or 4.4% to $308,000 for the year ended December 31, 1996, due to small increases in various other income accounts. S-52 6133 EXPENSES Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance totaled $1,591,000 for the year ended December 31, 1996, compared to $1,569,000 for the year ended December 31, 1995, an increase of $22,000 or 1.4%. This increase is primarily due to a general increase in maintenance expenses at the property. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $71,000 for the year ended December 31, 1996, compared to $111,000 for the year ended December 31, 1995, a decrease of $40,000, or 36%. This decrease was primarily the result of a general decrease in partnership administrative and management costs. DEPRECIATION EXPENSE Depreciation expense increased $42,000, or 7.7% to $587,000 due primarily to depreciation taken on property improvements. INTEREST EXPENSE Interest expense totaled $1,316,000 for the year ended December 31, 1996, compared to $1,323,000 for the year ended December 31, 1995, a decrease of $7,000, or 0.5%. The decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during 1996. EXTRAORDINARY ITEM During 1995, the Partnership recognized a gain on forgiveness of debt of $254,000 when the holder of the subordinated indebtedness forgave the outstanding balance. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Your Partnership had $1,434,000 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness was $12,320,000. The mortgage requires monthly payments of approximately $110,000 until October, 2001, at which time a balloon payment of approximately $12 million will be due. The note is collateralized by pledge of land and buildings and has a stated interest rate of 9.84%. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-53 6134 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 25% of the outstanding 106 units of your partnership (up to 26.5 units) for consideration per unit of (i) 1,220.75 Preferred OP Units, (ii) 788.75 Common OP Units, or (iii) $30,516 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after , 1999 and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on , 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below). This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of , 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-54 6135 offer consideration shall be reduced by any interim distributions made by your partnership between , 1999, and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units, and those units may not be withdrawn except to the extent that the tendering offerees are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-55 6136 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-56 6137 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Certain Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-57 6138 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to the expiration of our offer, as provided in this Prospectus Supplement, and unless units have been accepted for payment as described in "-- Acceptance For Payment and Payment For Units," tenders of units pursuant to this offer may be withdrawn on or after , 1999. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to S-58 6139 pay for units pursuant to the offer for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 25% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 25% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 25%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-59 6140 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after completion of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence or control voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-60 6141 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-61 6142 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-62 6143 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership or may control such voting decisions. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer S-63 6144 Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-64 6145 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-65 6146 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of certain Federal income tax consequences of the offer that may be relevant to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986 as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to change or differing interpretations, possibly retroactively. Such summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer constitute capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion with regard to the discussion of the tax consequences of the offer contained in this Prospectus Supplement under the heading "Certain Federal Income Tax Consequences" and in the attached Prospectus under headings "Federal Income Taxation of AIMCO and AIMCO Stockholders" and "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders." You may obtain a copy of such opinion by sending a written request to the AIMCO Operating Partnership. THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes upon an exchange of units solely for OP Units. You may recognize gain upon such exchange, where, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units transferred by you exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after such exchange. In such event, any such excess would be treated as a deemed distribution to you of cash from the AIMCO Operating Partnership. Such deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after an exchange of units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to such units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. S-66 6147 TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS In general, if you exchange your units for cash and OP Units, it should be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. Your adjusted tax basis in your transferred units should be allocated between the portion of such units deemed sold and the portion of such units deemed contributed to the AIMCO Operating Partnership. You should recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units allocable to the portion of such units deemed sold. Your "amount realized" on such sale should be equal to the sum of the amount of cash received by you pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities deemed transferred for Federal income tax purposes as additional consideration in the sale. For purposes of these partial sale rules, the amount of your partnership's liabilities deemed transferred in the exchange should be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange and (B) your "net equity percentage" with respect to such units. Your "net equity percentage" should be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units transferred by you in the exchange over the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange. Thus, your tax liability resulting from such sale of units could exceed the amount of cash received by you upon such sale. To the extent that your transfer of units in exchange for OP units is treated as a tax-free contribution to the AIMCO Operating Partnership, you should generally not recognize any gain or loss. You may recognize gain upon such exchange if the amount of your partnership's liabilities allocable to you, as determined immediately prior to the exchange, in respect of the portion of units that are treated as being transferred in a tax-free contribution exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you, as determined immediately after the exchange. In this event, such excess should be treated as a deemed distribution of cash from the AIMCO Operating Partnership to you. Such deemed cash distribution should be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units, and thereafter as a taxable gain. You should have a holding period in the OP Units received pursuant to the portion of the exchange that is treated as a tax free contribution that includes the holding period of your units transferred in exchange therefor. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH In general, you will recognize gain or loss on a sale of a unit pursuant to the offer equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from such sale of units could exceed the amount of cash received upon such sale. DISGUISED SALE TREATMENT In general, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if the second transfer would not have occurred but for the first transfer, and the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In such event, the partner is treated as if he or she sold the contributed property to the partnership as of the date of such contribution. In addition, unless certain exceptions apply, transfers of money or other property between a partnership and a partner that are made S-67 6148 within two years of each other must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to Preferred OP Units within two years of the date of the transfer of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the transfer of your units, the AIMCO Operating Partnership transferred to you an obligation to transfer the redemption proceeds to you and you would be required to recognize gain on the disguised sale in such earlier year. ADJUSTED TAX BASIS If you acquired your units for cash, your initial tax basis in your units is equal to such cash investment in the partnership increased by your share of partnership's liabilities at the time such units were acquired. Your initial tax basis generally has been increased by (i) your share of your partnership's income and gains and (ii) any increases in your share of liabilities of your partnership, and has been decreased (but not below zero) by (i) your share of cash distributions from your partnership, (ii) any decreases in your share of liabilities of your partnership, (iii) your share of losses of your partnership, and (iv) your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in units immediately prior to a disposition of such units, your adjusted tax basis in such units will include your allocable share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit. The initial adjusted tax basis of the OP Units received by you in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in such transferred units plus any gain recognized in the exchange and reduced by (ii) cash received or deemed received in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer generally will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit attributable to your share of "unrealized receivables" of your partnership exceeds the basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture with respect to certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to such income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as S-68 6149 certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with such losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you sell all or a portion of your units pursuant to the offer and recognizes a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must file an information statement with your Federal income tax return for the year of the tender which provides the information specified in Treasury Regulation Section 1.751-1(a)(3). To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO Operating Partnership will be required to deduct and withhold 10% of the amount realized by a foreign person on the disposition. Amounts would be creditable against the foreign person's Federal income tax liability and, if in excess thereof, a refund could be obtained from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). It is possible that the AIMCO Operating Partnership's acquisition of units pursuant to the offer could result in a Termination of your partnership. If a purchase of units results in a Termination, the following Federal income tax events will be deemed to occur. The terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for an interest in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will S-69 6150 carry over intact to the New Partnership. Any Termination may change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. The New Partnership's adjusted tax basis in its assets will carry over from the Old Partnership's basis in such assets immediately before the Termination. Any Termination may also subject the assets of the New Partnership to depreciable lives in excess of those currently applicable to the Old Partnership. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the Offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Section 704(c) of the Code will apply to the future allocations of income, gain, loss and deductions with respect to any New Partnership assets among the AIMCO Operating Partnership and the Remaining Offerees following the consummation of the offer only to the extent that such assets were Section 704(c) property in the hands of the Old Partnership immediately prior to the Hypothetical Contribution. Moreover, subject to the Code's anti-abuse regulations, the New Partnership will not be required to apply the same Section 704(c) allocation method applied by the Old Partnership. The Hypothetical Contribution will not trigger a new five-year holding period for purposes of measuring post-contribution appreciation of assets for the offeree who contributed such assets. Elections as to certain tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. In the case of a Remaining Offeree reporting on a tax year other than a calendar year, the closing of your partnership's taxable year may result in more than 12 months' taxable income or loss of the Old Partnership being includible in such Offeree's taxable income for the year of Termination. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-70 6151 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Illinois law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is Partnership Agreement") or as provided by December 31, 2050. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating own, operate, manage, rent, lease and repair Partnership is to conduct any business that your partnership's property. Subject to may be lawfully conducted by a limited restrictions contained in your partnership's partnership organized pursuant to the agreement of limited partnership, your Delaware Revised Uniform Limited Part- partnership may perform all acts necessary nership Act (as amended from time to time, or appropriate in connection therewith and or any successor to such statute) (the reasonably related thereto, including "Delaware Limited Partnership Act"), borrowing money and creating liens. provided that such business is to be conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to
S-71 6152 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP qualify as a REIT. The AIMCO Operating Partnership is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership is The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 106 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited The AIMCO Operating Partnership may lend or partnership specifically provides for fees contribute funds or other assets to its to the general partner subsidiaries or
S-72 6153 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP and to its affiliates to be paid in other persons in which it has an equity consideration of performing services which investment, and such persons may borrow do not constitute the duties or obligations funds from the AIMCO Operating Partnership, of the general partner as general partner of on terms and conditions established in the your partnership. Such fees are paid only sole and absolute discretion of the general from capital contribution or from such funds partner. To the extent consistent with the as are approved by the Department of Housing business purpose of the AIMCO Operating and Urban Development. The general partner Partnership and the permitted activities of may lend funds to your partnership in its the general partner, the AIMCO Operating discretion and charge interest thereon. Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money for partnership contains no restrictions on borrowings, and purposes and, if security is required the general partner has full power and therefor, to pledge, mortgage or subject to authority to borrow money on behalf of the any other security device any portion of AIMCO Operating Partnership. The AIMCO your partnership assets. Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners or written demand with a statement of the their duly authorized representatives to purpose of such demand and at such OP inspect and copy from the books and Unitholder's own expense, to obtain a documents of your partnership at the current list of the name and last known principal place of business of your business, residence or mailing address of partnership during normal business hours the general partner and each other OP upon reasonable notice. Unitholder.
Management Control The general partner of your partnership has All management powers over the business and sole responsibility for the management of affairs of the AIMCO Operating Partnership your partnership's business with all rights are vested in AIMCO-GP, Inc., which is the and powers generally conferred by law or general partner. No OP Unitholder has any necessary, advisable or consistent in right to participate in or exercise control connection therewith. Limited partners may or management power over the business and not take part in the management, conduct or affairs of the AIMCO Operating Partner- control of the business of your partnership. ship. The OP Unitholders have the right to vote on
S-73 6154 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP certain matters described under "Comparison of Your Units and AIMCO OP Units -- Voting Rights" below. The general partner may not be removed by the OP Unitholders with or without cause. In addition to the powers granted a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the AIMCO Operating Partnership Agreement, the general partner, subject to the other provisions of the AIMCO Operating Partnership Agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership is not liable to your Agreement, the general partner is not liable partnership or any limited partner for any to the AIMCO Operating Partnership for acts performed or omission to do any act losses sustained, liabilities incurred or which was done in good faith and in benefits not derived as a result of errors accordance with sound business practices and in judgment or mistakes of fact or law of your partnership's agreement of limited any act or omission if the general partner partnership. In addition, except as specifi- acted in good faith. The AIMCO Operating cally set forth in your partnership's Partnership Agreement provides for agreement of limited partnership, the indemnification of AIMCO, or any director or general partner is not liable to the limited officer of AIMCO (in its capacity as the partners because any taxing authorities previous general partner of the AIMCO disallowed or adjusted income, deductions or Operating Partnership), the general partner, credits in your partnership's income tax any officer or director of general partner returns. Moreover, your partnership will or the AIMCO Operating Partnership and such indemnify and hold harmless the general other persons as the general partner may partner from any claim, loss, expense, designate from and against all losses, liability, action or damage resulting from claims, damages, liabilities, joint or any act or omission done in good faith and several, expenses (including legal fees), in accordance with sound business practices fines, settlements and other amounts and the terms of your partnership's incurred in connection with any actions agreement of limited partnership, in-
S-74 6155 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP cluding without limitation, reasonable costs relating to the operations of the AIMCO and expenses of litigation and appeal Operating Partnership, as set forth in the (including reasonable fees and expenses of AIMCO Operating Partnership Agreement. The attorneys engaged by the general partners in Delaware Limited Partnership Act provides defense of such act or omission) but the that subject to the standards and general partner will not be entitled to be restrictions, if any, set forth in its indemnified or held harmless due to, or partnership agreement, a limited partnership arising from, its fraud, bad faith, gross may, and shall have the power to, indemnify negligence or malfeasance. and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, if the limited partners partner has exclusive management power over receive a declaratory judgment that the the business and affairs of the AIMCO following actions will not be deemed to be Operating Partnership. The general partner taking part in the control of the business may not be removed as general partner of the or receive a satisfactory opinion of counsel AIMCO Operating Partnership by the OP approved by limited partners owning 75% of Unitholders with or without cause. Under the the outstanding units, the limited partners AIMCO Operating Partnership Agreement, the may remove a general partner and elect a new general partner may, in its sole discretion, general partner upon a vote of the limited prevent a transferee of an OP Unit from partners owning more than 75% of the becoming a substituted limited partner outstanding units. If such judgment or pursuant to the AIMCO Operating Partnership opinion is not obtained, the consent of all Agreement. The general partner may exercise of the limited partners is necessary for this right of approval to deter, delay or such actions. A general partner may sell up hamper attempts by persons to acquire a to 50% of its interests owned at the time of controlling interest in the AIMCO Operating formation with the consent of 51% or more of Partnership. Additionally, the AIMCO the limited partners. A limited partner may Operating Partnership Agreement contains not transfer its interests without the restrictions on the ability of OP written consent of the general partners Unitholders to transfer their OP Units. See which may be withheld at the sole discretion "Description of OP Units -- Transfers and of the general partners. Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement The general partner may, and, at the request With the exception of certain circumstances of limited partners owning more than 75% of set forth in the AIMCO Operating Partnership the outstanding units, will, submit to the Agreement, whereby the general partner may, limited partners the text of any proposed without the consent of the OP Unitholders, amendment to your partnership's agreement of amend the AIMCO Operating Partnership limited partnership. If the limited partners Agreement, amendments to the AIMCO Operating obtain a declaratory judgment that such Partnership Agreement require the consent of action will not constitute control of your the holders of a majority of the outstanding partnership or receive such an opinion of Common OP Units, excluding AIMCO and certain counsel, a proposed amendment will be other limited exclusions (a "Majority in adopted if, within ninety days after the Interest"). Amendments to the AIMCO submission of the proposal to the limited Operating
S-75 6156 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners, the limited partners owning 90% of Partnership Agreement may be proposed by the the units give their consent. However, if no general partner or by holders of a Majority such judgment or opinion is obtained, in Interest. Following such proposal, the proposals will require the consent of all general partner will submit any proposed limited partners to be effective. In any amendment to the OP Unitholders. The general event, amendments which reduce the partner will seek the written consent of the obligations of the general partners, affect OP Unitholders on the proposed amendment or the rights or restrictions regarding will call a meeting to vote thereon. See assignability of the units, modify the term "Description of OP Units -- Amendment of the of your partnership, amend the provisions AIMCO Operating Partnership Agreement" in regarding power of attorney or reduce the the accompanying Prospectus. rights or interests or enlarge the obligations of the limited partners require the consent of all limited partners. In addition, certain provisions are not subject to amendment.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives no fee for its services as general its capacity as general partner of the AIMCO partner but may receive fees for additional Operating Partnership. In addition, the services. Moreover, the general partner or AIMCO Operating Partnership is responsible certain affiliates may be entitled to for all expenses incurred relating to the compensation for additional services AIMCO Operating Partnership's ownership of rendered. its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not bound by or personally liable for, the personal liability for the AIMCO Operating expenses, liabilities or obligations of your Partnership's debts and obligations, and partnership and the liabilities of each liability of the OP Unitholders for the limited partner is limited solely to the AIMCO Operating Partnership's debts and amount of its contribution to the capital of obligations is generally limited to the your partnership required under your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership. limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a
S-76 6157 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP holder of OP Units could be held liable under certain circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties The general partner is not required to Unless otherwise provided for in the devote all of its time or business efforts relevant partnership agreement, Delaware law to the affairs of your partnership, but must generally requires a general partner of a devote so much of such time and attention to Delaware limited partnership to adhere to your partnership as is reasonably neces- fiduciary duty standards under which it owes sary and advisable to manage the affairs of its limited partners the highest duties of your partnership to the best advantage of good faith, fairness and loyalty and which your partnership. The general partner may generally prohibit such general partner from engage in or possess an interest in other taking any action or engaging in any business ventures of every nature and transaction as to which it has a conflict of description, including, but not limited to, interest. The AIMCO Operating Partnership the acquisition, ownership, financing, Agreement expressly authorizes the general leasing, operation, management, syndication, partner to enter into, on behalf of the brokerage, sale, construction and AIMCO Operating Partnership, a right of development of real property, and neither first opportunity arrangement and other your partnership nor the partners shall have conflict avoidance agreements with various any rights in and to such independent affiliates of the AIMCO Operating business venture or the income and profits Partnership and the general partner, on such derived therefrom. terms as the general partner, in its sole and absolute discretion, believes are In general, your partnership's agreement of advisable. The AIMCO Operating Partnership limited partnership and the AIMCO Operating Agreement expressly limits the liability of Partnership Agreement have limitations on the general partner by providing that the the liability of the general partner but general partner, and its officers and such limitations differ and provide more directors will not be liable or accountable protection for the general partner of the in damages to the AIMCO Operating AIMCO Operating Partnership. Partnership, the limited partners or as- signees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that constitute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded
S-77 6158 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refinances issue date of the Preferred OP its assets, the net proceeds Units. therefrom generally will be re-
S-78 6159 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, approve have the same voting rights as certain amendments and or disapprove the sale of as holders of the Common OP termination of the AIMCO all or substantially all of Units. See "Description of Operating Partnership the assets of your OP Units" in the accompany- Agreement and certain partnership. The approval of ing Prospectus. So long as transactions such as the all the limited partners is any Preferred OP Units are institution of bankruptcy necessary for your outstanding, in addition to proceedings, an assignment partnership to engage in any any other vote or consent of for the benefit of creditors other business than as set partners required by law or and certain transfers by the forth in your partnership's by the AIMCO Operating general partner of its agreement of limited Partnership Agreement, the interest in the AIMCO partnership. If the limited affirmative vote or consent Operating Partnership or the partners receive a of holders of at least 50% admission of a successor declaratory judgment that of the outstanding Preferred general partner. the following actions will OP Units will be necessary not be deemed to be taking for effecting any amendment Under the AIMCO Operating part in the control of the of any of the provisions of Partnership Agreement, the business or receive a the Partnership Unit general partner has the satisfactory opinion of Designation of the Preferred power to effect the counsel approved by limited OP Units that materially and acquisition, sale, transfer, partners owning 75% or more adversely affects the rights exchange or other of the outstanding units, or preferences of the disposition of any assets of the limited partners owning holders of the Preferred OP the AIMCO Operating 90% or more of all of the Units. The creation or Partnership (including, but units may amend your issuance of any class or not limited to, the exercise partnership's agreement of series of partnership units, or grant of any conversion, limited partnership, sub- including, without option, privilege or ject to certain limitations; limitation, any partner- subscription right or any the limited partners owning ship units that may have other right available in more than 66 2/3% may rights senior or superior to connection with any assets authorized the dissolution the Preferred OP Units, at any time held by the and termination of your shall not be deemed to AIMCO Operating Partnership) partnership; and the limited materially adversely affect or the merger, partners owning 75% or more the rights or preferences of consolidation, of the outstanding units may the holders of Preferred OP reorganization or other remove a general partner and Units. With respect to the combination of the AIMCO elect a new general partner. exercise of the above Operating Partnership with However, in the absence of described voting rights, or into another entity, all such determination or each Preferred OP Units without the consent of the opinion, the consent of all shall have one (1) vote per OP Unitholders. of the limited partners is Preferred OP Unit. required. The general partner may A general partner may cause cause the dissolution of the the dissolution of the your AIMCO Operating Partnership partnership by retiring when by an "event of withdrawal," there are no remaining as defined in the Delaware general partners, unless the Limited Partner- limited partners owning more the 75% of the then out-
S-79 6160 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS standing units elect a new ship Act (including, without general partner within sixty limitation, bankruptcy), days of such retirement. unless, within 90 days after In general, you have greater the withdrawal, holders of a voting rights in your "majority in interest," as partnership than you will defined in the Delaware have as an OP Unitholder. OP Limited Partnership Act, Unitholders cannot remove agree in writing, in their the general partner of the sole and absolute AIMCO Operating Partnership. discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Dis- quarterly cash distributions to distribute quarterly all, tributions from Cash Flow at the rate of $0.50 per or such portion as the will be determined by the Preferred OP Unit; provided, general partner may in its general partners as of the however, that at any time sole and absolute discretion last day of each semi-annual and from time to time on or determine, of Available Cash period of each fiscal year after the fifth anniversary (as defined in the AIMCO and will be distributed at of the issue date of the Operating Partnership convenient periodic Preferred OP Units, the Agreement) generated by the intervals, not less than AIMCO Operating Partnership AIMCO Operating Partnership semi-annually, within sixty may adjust the annual during such quarter to the days after the close of such distribution rate on the general partner, the special semi-annual period. The Preferred OP Units to the limited partner and the distributions payable to the lower of (i) 2.00% plus the holders of Common OP Units partners are not fixed in annual interest rate then on the record date es- amount and depend upon the applicable to U.S. Treasury tablished by the general operating results and net notes with a maturity of partner with respect to such sales or refinancing five years, and (ii) the quarter, in accordance with proceeds available from the annual dividend rate on the their respective interests disposition of your most recently issued AIMCO in the AIMCO Operating partnership's assets. non-convertible preferred Partnership on such record stock which ranks on a date. Holders of any other parity with its Class H Pre- Cumulative Preferred
S-80 6161 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock. Such distributions ferred OP Units issued in will be cumulative from the the future may have priority date of original issue. over the general partner, Holders of Preferred OP the special limited partner Units will not be entitled and holders of Common OP to receive any distributions Units with respect to in excess of cumulative distributions of Available distributions on the Cash, distributions upon Preferred OP Units. No liquidation or other interest, or sum of money in distributions. See "Per lieu of interest, shall be Share and Per Unit Data" in payable in respect of any the accompanying Prospectus. distribution payment or pay- ments on the Preferred OP The general partner in its Units that may be in sole and absolute discretion arrears. may distribute to the OP Unitholders Available Cash When distributions are not on a more frequent basis and paid in full upon the provide for an appropriate Preferred OP Units or any record date. Parity Units (as defined below), all distributions The AIMCO Operating Partner- declared upon the Preferred ship Agreement requires the OP Units and any Parity general partner to take such Units shall be declared reasonable efforts, as ratably in proportion to the determined by it in its sole respective amounts of and absolute discretion and distributions accumulated, consistent with AIMCO's accrued and unpaid on the qualification as a REIT, to Preferred OP Units and such cause the AIMCO Operating Parity Units. Unless full Partnership to distribute cumulative distributions on sufficient amounts to en- the Preferred OP Units have able the general partner to been declared and paid, transfer funds to AIMCO and except in limited circum- enable AIMCO to pay stock- stances, no distributions holder dividends that will may be declared or paid or (i) satisfy the requirements set apart for payment by the for qualifying as a REIT AIMCO Operating Partnership under the Code and the and no other distribution of Treasury Regulations and cash or other property may (ii) avoid any Federal be declared or made, income or excise tax directly or indirectly, by liability of AIMCO. See the AIMCO Operating "Description of OP Partnership with respect to Units -- Distributions" in any Junior Units (as de- the accompanying Prospectus. fined below), nor shall any Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person if: (i) the and the Pre- Oper-
S-81 6162
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS transferee is a citizen and ferred OP Units are not ating Partnership Agreement resident of the United listed on any securities restricts the States, (ii) the transferor exchange. The Preferred OP transferability of the OP delivers to the general Units are subject to Units. Until the expiration partner a satisfactory, restrictions on transfer as of one year from the date on unqualified opinion of set forth in the AIMCO which an OP Unitholder counsel that the transfer Operating Partnership acquired OP Units, subject does not violate Federal or Agreement. to certain exceptions, such state securities laws, (iii) OP Unitholder may not the transferee executes a Pursuant to the AIMCO transfer all or any por- statement that it is Operating Partnership tion of its OP Units to any acquiring the units for Agreement, until the transferee without the investment and (iv) the expiration of one year from consent of the general general partner consents to the date on which a holder partner, which consent may the transfer, the granting of Preferred OP Units be withheld in its sole and or denial of which is in its acquired Preferred OP Units, absolute discretion. After sole discretion and will be subject to certain the expiration of one year, denied if such transfer will exceptions, such holder of such OP Unitholder has the result in the termination of Preferred OP Units may not right to transfer all or any your partnership for income transfer all or any portion portion of its OP Units to tax purposes. Such of its Preferred OP Units to any person, subject to the transferee may be substi- any transferee without the satisfaction of certain con- tuted as a limited partner consent of the general ditions specified in the if, in addition to the above partner, which consent may AIMCO Operating Partnership requirements: (i) a written be withheld in its sole and Agreement, including the assignment has been duly absolute discretion. After general partner's right of executed and acknowledged by the expiration of one year, first refusal. See the assignor and assignee, such holders of Preferred OP "Description of OP Units -- (ii) the assignor or the Units has the right to Transfers and Withdrawals" assignee pays a transfer transfer all or any portion in the accompanying fee, (iii) an amendment to of its Preferred OP Units to Prospectus. the certificate of limited any person, subject to the partnership is filed and satisfaction of certain After the first anniversary (iv) the assignor and as- conditions specified in the of becoming a holder of signee have complied with AIMCO Operating Partner- Common OP Units, an OP such other conditions as set ship Agreement, including Unitholder has the right, forth in your partnership's the general partner's right subject to the terms and agreement of limited of first refusal. conditions of the AIMCO partnership. Operating Partnership There are no redemption After a one-year holding Agreement, to require the rights associated with your period, a holder may redeem AIMCO Operating Partnership units. Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered for on the ownership of Class A redemption, or (iii) for Common Stock imposed under Preferred OP Units redeemed AIMCO's charter and the after a two-year holding transfer restrictions and period, a number of shares other limitations thereof, of Class I Preferred elect to cause AIMCO to
S-82 6163 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Stock of AIMCO that pay an acquire some or all of the aggregate amount of tendered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-83 6164 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-84 6165 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-85 6166 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-86 6167 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and the Class E Preferred Stock, and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing January 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned S-87 6168 directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-88 6169 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-89 6170 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set When distributions are not paid in full upon apart for payment, except in limited the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared all or paid or set apart for
S-90 6171 PREFERRED OP UNITS CLASS I PREFERRED STOCK distributions declared upon the Preferred OP payment by AIMCO and no other distribution Units and any Parity Units will be declared of cash or other property may be declared or ratably in proportion to the respective made, directly or indirectly, by AIMCO with amounts of distributions accumulated, respect to any shares of Class I Junior accrued and unpaid on the Preferred OP Units Stock, nor shall any shares of Class I and such Parity Units. Unless full Junior Stock be redeemed, purchased or cumulative distributions on the Preferred OP otherwise acquired for any consideration, Units have been declared and paid, except in nor shall any other cash or other property limited circumstances, no distributions may be paid or distributed to or for the benefit be declared or paid or set apart for payment of holders of shares of Class I Junior by the AIMCO Operating Partnership and no Stock. See "Description of Class I Preferred other distribution of cash or other property Stock -- Dividends." may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, cash in an amount the charitable beneficiaries. equal to the Liquidation Preference of the Preferred OP Units tendered for The trustee may sell the Class I Preferred Stock held
S-91 6172 PREFERRED OP UNITS CLASS I PREFERRED STOCK redemption, (ii) a number of shares of Class in the trust to AIMCO or a person, A Common Stock of AIMCO that is equal in designated by the trustee, whose ownership value to the Liquidation Preference of the of the Class I Preferred Stock will not Preferred OP Units tendered for redemption, violate the Class I Preferred Ownership or (iii) for Preferred OP Units redeemed Limit. Upon such sale, the interest of the after a two-year holding period, a number of charitable beneficiaries in the shares sold shares of Class I Preferred Stock of AIMCO will terminate and the trustee will that pay an aggregate amount of dividends distribute to the prohibited transferee, the equivalent to the distributions on the lesser of (i) the price paid by the Preferred OP Units tendered for redemption; prohibited transferee for the shares or if provided that such shares are part of a the prohibited transferee did not give value class or series of preferred stock that is for the shares in connection with the event then listed on the NYSE or another national causing the shares to be held in the trust, securities exchange. The Preferred OP Units the market price of such shares on the day may not be redeemed at the option of the of the event causing the shares to be held AIMCO Operating Partnership. See in the trust and (ii) the price per share "Description of Preferred OP received by the trustee from the sale or Units -- Redemption." other disposition of the shares held in the trust. Any proceeds in excess of the amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-92 6173 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership, has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $62,000 in 1996, $61,000 in 1997 and $35,001 in 1998. The property manager received management fees of $144,000 in 1996, $94,787 in 1997 and $191,780 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after completion of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. S-93 6174 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $50,000 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... 5,000 Legal Fees.................................................. 10,000 Printing Fees............................................... 10,000 Stanger's Fees.............................................. 9,000 Other....................................................... 11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and positive 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. S-94 6175 LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the status of AIMCO as a REIT and with regard to the discussion of the tax consequences described in this Prospectus Supplement and the attached Prospectus. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of Yorktown Towers Associates at December 31, 1997 and 1996, and for the years then ended, as set forth in their report. We've included the financial statements of Yorktown Towers Associates in the prospectus supplement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. S-95 6176 YORKTOWN TOWERS ASSOCIATES INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (Unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (Unaudited)................... F-4 Note to Condensed Financial Statements (unaudited).......... F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Changes in Partners' Deficit for the year ended December 31, 1997......................................... F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheet as of December 31, 1996....................... F-16 Statement of Operations for the year ended December 31, 1996...................................................... F-17 Statement of Changes in Partners' Deficit for the year ended December 31, 1996......................................... F-18 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-19 Notes to Financial Statements............................... F-20
F-1 6177 YORKTOWN TOWERS ASSOCIATES CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS Cash and cash equivalents................................... $ 1,434,292 Receivables and deposits.................................... 64,586 Restricted escrows.......................................... 172,016 Other assets................................................ 396,132 Investment property: Land...................................................... $ 1,475,040 Building and related personal property.................... 16,255,574 ----------- 17,730,614 Less: Accumulated depreciation............................ (8,995,521) 8,735,093 ----------- ----------- Total assets...................................... $10,802,119 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 30,268 Other accrued liabilities................................... 144,156 Property taxes payable...................................... 345,741 Tenant security deposits.................................... 52,701 Notes payable............................................... 12,320,589 Partners' deficit................................. (2,091,336) ----------- Total liabilities and partners' deficit........... $10,802,119 ===========
See accompanying note. F-2 6178 YORKTOWN TOWERS ASSOCIATES CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1998 1997 ---------- ---------- Revenues: Rental income............................................. $2,728,628 $2,397,303 Other income.............................................. 214,187 190,182 ---------- ---------- Total revenues.................................... 2,942,815 2,587,485 Expenses: Operating expenses........................................ 1,011,135 1,114,998 General and administrative expenses....................... 61,502 66,550 Depreciation expense...................................... 429,000 429,000 Interest expense.......................................... 912,829 919,273 Property tax expense...................................... 339,146 343,253 ---------- ---------- Total expenses.................................... 2,753,612 2,873,074 Net income (loss)................................. $ 189,203 $ (285,589) ========== ==========
See accompanying note. F-3 6179 YORKTOWN TOWERS ASSOCIATES CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1998 1997 ---------- --------- Operating Activities: Net income (loss)......................................... $ 189,203 $(285,589) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 429,000 429,000 Changes in accounts: Receivables and deposits and other assets............ 139,743 68,220 Accounts payable and accrued expenses................ (155,134) (197,919) ---------- --------- Net cash provided by operating activities......... 602,812 13,712 Investing activities: Property improvements and replacements.................... (130,093) (101,506) Net (increase)/decrease in restricted escrows............. (6,016) 295,428 ---------- --------- Net cash provided by (used in) investing activities....... (136,109) 193,922 Financing activities: Payments on mortgage...................................... (72,411) (66,442) Partners' Distributions................................... (365,000) -- ---------- --------- Net cash used in financing activities..................... (437,411) (66,442) ---------- --------- Net increase in cash and cash equivalents................. 29,292 141,192 Cash and cash equivalents at beginning of year............ 1,405,000 626,000 ---------- --------- Cash and cash equivalents at end of period................ $1,434,292 $ 767,192 ========== =========
See accompanying note. F-4 6180 YORKTOWN TOWERS ASSOCIATES NOTE TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Yorktown Towers Associates as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 6181 REPORT OF INDEPENDENT AUDITORS To the Partners of Yorktown Towers Associates (a Limited Partnership) We have audited the accompanying balance sheet of Yorktown Towers Associates, as of December 31, 1997, and the related statement of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yorktown Towers Associates at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 13, 1998 Greenville, South Carolina F-6 6182 YORKTOWN TOWERS ASSOCIATES BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 1,405 Receivables and deposits.................................... 274 Restricted escrows.......................................... 166 Other assets................................................ 326 Investment property (Note B): Land...................................................... $ 1,475 Buildings and related personal property................... 16,126 ------- 17,601 Less accumulated depreciation............................. (8,567) 9,034 ------- ------- $11,205 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 5 Tenant security deposit liabilities....................... 73 Other liabilities......................................... 650 Mortgage note payable (Note B)............................ 12,393 Partners' deficit: General partner........................................... (48) Limited partners (103 units issued and outstanding)....... (1,868) ------- (1,916) ------- $11,205 =======
See accompanying notes. F-7 6183 YORKTOWN TOWERS ASSOCIATES STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $3,500 Other income.............................................. 264 Gain on disposal of property.............................. 5 ------ Total revenues.................................... 3,769 Expenses: Operating (Note C)........................................ $1,642 General and administrative (Note C)....................... 92 Depreciation.............................................. 572 Interest.................................................. 1,302 Property taxes............................................ 433 4,041 ------ ------ Net loss.......................................... $ (272) ======
See accompanying notes. F-8 6184 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CHANGES IN PARTNERS' DEFICIT (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- ------- Partners' deficit at December 31, 1996...................... $(45) $(1,599) $(1,644) Net loss for the year ended December 31, 1997............. (3) (269) (272) ---- ------- ------- Partners' deficit at December 31, 1997...................... $(48) $(1,868) $(1,916) ==== ======= =======
See accompanying notes. F-9 6185 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (272) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 572 Amortization of loan costs............................. 77 Gain on disposal of property........................... (5) Changes in accounts: Receivables and deposits............................. 460 Other assets......................................... (21) Accounts payable..................................... (59) Tenant security deposit liabilities.................. (59) Other liabilities.................................... 29 ------ Net cash provided by operating activities......... 722 Cash flows from investing activities Property improvements and replacements.................... (161) Proceeds from sale of property............................ 14 Net withdrawals from restricted escrows................... 294 ------ Net cash provided by investing activities................. 147 Cash flows from financing activities Principal payments on mortgage note payable............... (90) ------ Increase in cash and cash equivalents..................... 779 Cash and cash equivalents at December 31, 1996............ 626 ------ Cash and cash equivalents at December 31, 1997............ $1,405 ====== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $1,225 ======
See accompanying notes. F-10 6186 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Yorktown Towers Associates (the "Partnership") is an Illinois limited partnership organized in November 1981 to acquire and operate a residential property located in Lombard, Illinois. The General Partner ("General Partner") is MAERIL, Inc., an affiliate of Insignia Financial Group, Inc. Allocation of Profits, Gains, Losses and Cash Distributions Pursuant to the terms of the Partnership Agreement, losses will be allocated 99% to the Limited Partners and 1% to the General Partner. Profits will be allocated in accordance with distributions of cash flow (as described below). Profits from the sale, exchange or other distribution of the Partnership's property will be allocated to the General Partner in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partner from any such sale or refinancing (as described below). Losses from the sale, exchange or other distribution of the Partnership property will be allocated 1% to the General Partner. The remaining sale, exchange or other distribution profits and losses will be allocated to the Limited Partners. Distributions of cash flow of the Partnership will be allocated first to the Limited Partners in an amount ranging from 5% to 14% per annum on a non-cumulative basis of their aggregate capital contributions, and the balance 66 2/3% to the Limited Partners and 33 1/3% to the General Partner. Distributions of proceeds arising from the sale or refinancing of the Partnership property will be allocated 66 2/3% to the Limited Partners and 33 1/3% to the General Partner. However, all such distributions to the General Partner are subordinated to the Limited Partners' receipt of their capital, plus the stipulated return thereon. Loan Costs Loan costs of $538,000 incurred with the financing of the mortgage note payable are included in "Other assets" and are being amortized on a straight-line basis over the life of the loan. Accumulated amortization at December 31, 1997 is $248,000. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Depreciation is computed utilizing the straight-line method over an estimated useful life of 10 to 40 years for buildings and improvements and 5 years for furniture and fixtures. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. F-11 6187 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of the mortgage note payable, $365,000 of the proceeds were designated for "capital improvement escrows" for certain capital improvements. During 1997, the balance in this escrow was withdrawn to fund capital improvements at the property. 2) Replacement Reserve Account In addition to the Capital Improvement Reserves, replacement reserves of $147,000 were established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. At December 31, 1997, the balance was $166,000. Investment Property The investment property is stated at cost. The Partnership records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Costs Advertising costs ($54,000 in 1997) are charged to expense as they are incurred and are included in operating expenses. NOTE B -- MORTGAGE NOTE PAYABLE (DOLLAR AMOUNTS IN THOUSANDS) The Principal terms of the mortgage note payable are as follows: Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Yorktown Towers Apartments. This note bears interest at a rate of 9.84% per annum. Monthly installments of principal and interest of $110 are due through October 2001...................................... $12,393 =======
F-12 6188 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The mortgage note payable is non-recourse to the Partnership and is secured by pledge of the investment property and by pledge of revenues from the property. The note may be repaid prior to maturity, including a prepayment penalty of a minimum of 1% of the outstanding balance. Scheduled principal payments of the mortgage note payable subsequent to December 31, 1997, are as follows: 1998...................................................... $ 99 1999...................................................... 109 2000...................................................... 121 2001...................................................... 12,064 ------- $12,393 =======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The partnership agreement provides for payments to affiliates of the General Partner for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid to the affiliates of the General Partner in 1997 (in thousands): Property management fees.................................... $144 Reimbursement for investor services, asset management and partnership accounting.................................... 61
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ----------- ---------------- Yorktown Towers........................... $12,393 $1,475 $11,684 $4,442 ======= ====== ======= ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ------ ----------- ------- ------------ -------- ------------- Yorktown Towers......... $1,475 $16,126 $17,601 $8,567 11/81 5-40 ====== ======= ======= ======
F-13 6189 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): INVESTMENT PROPERTY Balance at beginning of year................................ $17,463 Property disposals.......................................... (19) Property improvements....................................... 157 ------- Balance at end of year............................ $17,601 ======= ACCUMULATED DEPRECIATION Balance at beginning of year................................ $ 8,009 Property disposals.......................................... (14) Additions charged to expense................................ 572 ------- Balance at end of year............................ $ 8,567 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $17,601,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $15,327,000. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 6190 REPORT OF INDEPENDENT AUDITORS To the Partners of Yorktown Towers Associates (a Limited Partnership) We have audited the accompanying balance sheet of Yorktown Towers Associates, as of December 31, 1996, and the related statement of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yorktown Towers Associates as of December 31, 1996, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 4, 1997 Greenville, South Carolina F-15 6191 YORKTOWN TOWERS ASSOCIATES BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 626 Restricted -- tenant security deposits.................... 134 Accounts receivable......................................... 12 Escrow for taxes............................................ 588 Restricted escrows.......................................... 460 Other assets................................................ 382 Investment property (Note B and D): Land...................................................... $ 1,475 Buildings and related personal property................... 15,988 ------- 17,463 Less accumulated depreciation............................. (8,009) 9,454 ------- -------- $ 11,656 ======== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 64 Tenant security deposits.................................. 132 Other liabilities......................................... 621 Mortgage note payable (Note B)............................ 12,483 Partners' deficit: General partners.......................................... (45) Limited partners (103 units issued and outstanding)....... (1,599) -------- (1,644) -------- $ 11,656 ========
See accompanying notes. F-16 6192 YORKTOWN TOWERS ASSOCIATES STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $3,587 Other income.............................................. 308 ------ Total revenues.................................... 3,895 Expenses: Operating................................................. 1,229 General and administrative................................ 71 Maintenance............................................... 362 Depreciation.............................................. 587 Interest.................................................. 1,316 Property taxes............................................ 405 ------ Total expenses.................................... 3,970 ------ Net loss.......................................... $ (75) ======
See accompanying notes. F-17 6193 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CHANGES IN PARTNERS' DEFICIT (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1995...................... $(44) $(1,525) $(1,569) Net loss for the year ended December 31, 1996............. (1) (74) (75) ---- ------- ------- Partners' deficit at December 31, 1996...................... $(45) $(1,599) $(1,644) ==== ======= =======
See accompanying notes. F-18 6194 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (75) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 587 Amortization of loan costs............................. 77 Changes in accounts: Accounts receivable.................................. (5) Escrow for taxes..................................... (240) Other assets......................................... (2) Accounts payable..................................... (31) Tenant security deposit liabilities.................. (11) Other liabilities.................................... 15 ------ Net cash provided by operating activities......... 315 Cash flows from investing activities Property improvements and replacements.................... (222) Deposits to restricted escrows............................ (25) Withdrawals from restricted escrows....................... 97 ------ Net cash used in investing activities............. (150) Cash flows from financing activities Principal payments on mortgage note payable............... (81) ------ Increase in cash.......................................... 84 Unrestricted cash at December 31, 1995.................... 542 ------ Unrestricted cash December 31, 1996....................... $ 626 ====== Supplemental disclosure of cash flow information Cash paid for interest.................................... $1,233 ======
See accompanying notes. F-19 6195 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Yorktown Towers Associates ("Partnership") is an Illinois limited partnership organized in November 1981 to acquire and operate a residential property located in Lombard, Illinois. VMS Realty Investment Ltd. and VMS Realty, Inc., the Partnership's former general partners, withdrew from the Partnership and transferred their partnership interests to MAERIL, Inc., (the "General Partner") an affiliate of Insignia Financial Group, Inc., effective February 23, 1995. Allocation of Profits, Gains, Losses and Cash Distributions Pursuant to the terms of the Partnership Agreement, losses will be allocated 99% to the Limited Partners and 1% to the General Partners. Profits will be allocated in accordance with distributions of cash flow (as described below). Profits from the sale, exchange or other distribution of the Partnership's property will be allocated to the General Partners in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partners from any such sale or refinancing (as described below). Losses from the sale, exchange or other distribution of the Partnership property will be allocated 1% to the General Partners. The remaining sale, exchange or other distribution profits and losses will be allocated to the Limited Partners. Distributions of cash flow of the Partnership will be allocated first to the Limited Partners in an amount ranging from 5% to 14% per annum on a non-cumulative basis of their aggregate capital contributions, and the balance 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. Distributions of proceeds arising from the sale or refinancing of the Partnership property will be allocated 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. However, all such distributions to the General Partners are subordinated to the Limited Partners' receipt of their capital, plus the stipulated return thereon. Escrow for Taxes All escrow funds are currently held by the Partnership and are designated for the payment of real estate taxes. Loan Costs Loan costs of $538,000 incurred with the financing of the mortgage note payable are included in "Other assets" and are being amortized on a straight-line basis over the life of the loan. Accumulated amortization at December 31, 1996 is $171,000. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Depreciation is computed utilizing the straight-line method over an estimated useful life of 10 to 40 years for buildings and improvements and 5 years for furniture and fixtures. F-20 6196 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents -- Unrestricted Cash The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and considers the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of the mortgage note payable, $365,000 of the proceeds were designated for "capital improvement escrows" for certain capital improvements. At December 31, 1996 the balance in the escrow was $301,000, which includes interest earned on these funds. Upon completion of the scheduled property improvements, any excess will be returned to the property for operations. 2) Replacement Reserve Account In addition to the Capital Improvement Reserves, replacement reserves of $147,000 were established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. At December 31, 1996, the balance was $159,000. Investment Property The Partnership accounts for its investment property in accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Costs Advertising costs ($66,000 in 1996) are charged to expense as they are incurred and are included in operating expenses. F-21 6197 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTE PAYABLE (DOLLAR AMOUNTS IN THOUSANDS) The principal terms of the mortgage note payable are as follows: Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Yorktown Towers Apartments. This note bears interest at a rate of 9.84% per annum. Monthly installments of principal and interest of $110 are due through October 2001...................................... $12,483 =======
The mortgage note payable is non-recourse to the Partnership and is secured by pledge of the investment property and by pledge of revenues from the property. The note may be repaid prior to maturity, including a prepayment penalty of a minimum of 1% of the outstanding balance. It may not be repaid prior to October 15, 1997. Scheduled principal payments of the mortgage note payable for the five years subsequent to December 31, 1996, are as follows: 1997...................................................... $ 90 1998...................................................... 99 1999...................................................... 109 2000...................................................... 121 2001...................................................... 12,064 ------- $12,483 =======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The partnership agreement provides for payments to affiliates of the General Partner for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid to the affiliates of the General Partners in 1996 (in thousands): Property management fees.................................... $92 Reimbursement for investor services, asset management and partnership accounting.................................... 62
NOTE D -- FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ----------- ------------- Yorktown Towers............................. $12,483 $1,475 $11,684 $4,304 ======= ====== ======= ======
F-22 6198 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS ----------- ------ ----------- ------- ------------ -------- ----------- Yorktown Towers............ $1,475 $15,988 $17,463 $8,009 11/81 5-40 ====== ======= ======= ======
Reconciliation of "Fixed Assets and Accumulated Depreciation" (in thousands): FIXED ASSETS Balance at beginning of year................................ $17,241 Property improvements....................................... 222 ------- Balance at end of year...................................... $17,463 ======= ACCUMULATED DEPRECIATION Balance at beginning of year................................ $ 7,422 Additions charged to expense................................ 587 ------- Balance at end of year...................................... $ 8,009 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1996 is $17,463. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 is $15,135. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-23 6199 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 6200 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 6201 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 6202 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 6203 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 6204 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 6205 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 6206 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 6207 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(I) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 6208 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 6209 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii) (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii) (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii) (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix) (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii) 6,573 (xviii) (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305 (xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii) 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi) -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 6210 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv)Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi)Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix)Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi)Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 6211 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv)Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx)Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 6212 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii)Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 6213 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 6214 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 6215 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 6216 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(I) ADJUSTMENTS(II) REORGANIZATION(III) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 6217 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 6218 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 6219 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(I) MERGER(II) OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 6220 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 6221 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 6222 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 6223 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(I) REORGANIZATION(II) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 6224 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 6225 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 6226
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(I) HISTORICAL(II) ADJUSTMENTS(III) REORGANIZATION(IV) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i)Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 6227 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 6228
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i)Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 6229 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 6230 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 6231 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 6232
NEW IFG AMIT INSIGNIA IFG HISTORICAL(I) MERGER(II) SPIN-OFF(III) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i)Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 6233 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 6234 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 6235 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 6236
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Mannor Apartments, Limited Partnership........ 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 6237 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 6238 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 6239 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 6240 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 6241 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 6242 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 6243 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 6244 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 6245 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 6246 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 6247 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 6248 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 6249 APPENDIX A OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: York Towers Associated Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of York Towers Associated (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $30,516 in cash, or 788.75 Common OP Units of the Purchaser, or 1,220.75 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; A-1 6250 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we reviewed the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner, and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or A-2 6251 its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to effect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer; and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March , 1999 A-3 6252 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
B-1 6253
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
B-2 6254
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
B-3 6255
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
B-4 6256
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 6257 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 6258 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. AIMCO AIMCO's Charter limits the liability of AIMCO's directors and officers to AIMCO and its stockholders to the fullest extent permitted from time to time by Maryland law. Maryland law presently permits the liability of directors and officers to a corporation or its stockholders for money damages to be limited, except (i) to the extent that it is proved that the director or officer actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received, or (ii) if a judgment or other final adjudication is entered in a proceeding based on a finding that the director's or officer's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. This provision does not limit the ability of AIMCO or its stockholders to obtain other relief, such as an injunction or rescission. AIMCO's Charter and Bylaws require AIMCO to indemnify its directors, officers and certain other parties to the fullest extent permitted from time to time by Maryland law. The MGCL permits a corporation to indemnify its directors, officers and certain other parties against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service to or at the request of the corporation, unless it is established that (i) the act or omission of the indemnified party was material to the matter giving rise to the proceeding and (x) was committed in bad faith or (y) was the result of active and deliberate dishonesty, (ii) the indemnified party actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the indemnified party had reasonable cause to believe that the act or omission was unlawful. Indemnification may be made against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with the proceeding; provided, however, that if the proceeding is one by or in the right of the corporation, indemnification may not be made with respect to any proceeding in which the director or officer has been adjudged to be liable to the corporation. In addition, a director or officer may not be indemnified with respect to any proceeding charging improper personal benefit to the director or officer in which the director or officer was adjudged to be liable on the basis that personal benefit was improperly received. The termination of any proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of any order of probation prior to judgment, creates a rebuttable presumption that the director or officer did not meet the requisite standard of conduct required for indemnification to be permitted. It is the position of the Commission that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act. AIMCO has entered into agreements with certain of its officers, pursuant to which AIMCO has agreed to indemnify such officers to the fullest extent permitted by applicable law. THE AIMCO OPERATING PARTNERSHIP The AIMCO Operating Partnership Agreement requires the AIMCO Operating Partnership to indemnify its directors and officers (each an "Indemnitee") to the fullest extent authorized by applicable law against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the AIMCO Operating Partnership. Such indemnification continues after the Indemnitee ceases to be a director or officer. The right to indemnification includes the right to be paid by the AIMCO Operating Partnership the expenses incurred in defending any proceeding in advance of its final disposition upon the delivery of an undertaking by or on behalf of the Indemnitee to repay all amounts II-1 6259 advanced if a final judicial decision is rendered that such Indemnitee did not meet the standard of conduct permitting indemnification under the AIMCO Operating Partnership Agreement or applicable law. The Partnership maintains insurance, at its expense, to protect against any liability or loss, regardless of whether any director or officer is entitled to indemnification under the AIMCO Operating Partnership Agreement or applicable law. ITEM 21. EXHIBITS. (a) 4.1 (1) Specimen certificate for Class A Common Stock. 4.2 (1) Specimen certificate for Common OP Unit. 5.1 (2) Opinion of Piper & Marbury L.L.P. regarding the validity of the Class A Common Stock and Preferred Stock offered hereby. 5.2 (2) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the Common OP Units and the Preferred OP Units offered hereby. 8.1 (4) Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters. 12.1 (5) Calculation of ratio of earnings to fixed charges. 12.2 (5) Calculation of ratio of earnings to combined fixed charges and preferred stock dividends. 23.1 (4) Consent of Ernst & Young LLP, Dallas, Texas. 23.2 (4) Consent of Ernst & Young LLP, Chicago, Illinois. 23.3 (4) Consent of Ernst & Young LLP, Greenville, South Carolina. 23.4 (4) Consent of Ernst & Young LLP, Indianapolis, Indiana. 23.5 (5) Consent of Arthur Andersen LLP. 23.6 (2) Consent of Piper & Marbury L.L.P. (included in opinion filed as Exhibit 5.1). 23.7 (2) Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in opinion filed as Exhibit 5.2). 23.8 Consents of KPMG Peat Marwick LLP with respect to financial statements of the following entities: 23.8.1 (4) -- Baywood Partners, Ltd. 23.8.2 (4) -- Burgundy Court Associates, L.P. 23.8.3 (4) -- Catawba Club Associates, L.P. 23.8.4 (4) -- Georgetown of Columbus Associates, L.P. 23.8.5 (4) -- La Colina Partners, Ltd. 23.8.6 (4) -- Lake Eden Associates, L.P. 23.8.7 (4) -- Landmark Associates, Ltd. 23.8.8 (4) -- Northbrook Apartments, Ltd. 23.8.9 (4) -- Shaker Square, L.P. 23.8.10 (4) -- Thurber Manor Associates, Limited Partnership. 23.8.11 (4) -- Quail Run Associates, L.P. 23.8.12 (4) -- Sycamore Creek Associates, L.P. 23.9 (5) Consent of Portock, Bye & Co. (Brampton Associates Partnership). 23.10 Consents of Ernst & Young LLP, Greenville, South Carolina with respect to financial statements of the following entities: 23.10.1 (4) -- Rivercreek Apartments Limited Partnership. 23.10.2 (5) -- Shearson/Calmark Heritage Park II Ltd. 23.10.3 (4) -- Yorktown Towers Associates. 23.10.4 (4) -- Shannon Manor Apartments, a Limited Partnership. 23.10.5 (4) -- Woodmere Associates, L.P.
II-2 6260 23.10.6 (4) -- Salem Arms of Augusta Limited Partnership. 23.10.7 (4) -- Coastal Commons Limited Partnership. 23.10.8 (4) -- Snowden Village Associates, L.P. 23.10.9 (4) -- Sharon Woods, L.P. 23.10.10(4) -- Rivercrest Apartments, Limited. 23.10.11(5) -- Angeles Income Properties, Ltd. II. 23.10.12(5) -- Angeles Income Properties, Ltd. III. 23.10.13(5) -- Angeles Income Properties, Ltd. IV. 23.10.14(5) -- Angeles Income Properties, Ltd. 6. 23.10.15(5) -- Angeles Opportunity Properties, Ltd. 23.10.16(5) -- Angeles Partners VII. 23.10.17(5) -- Angeles Partners VIII. 23.10.18(5) -- Angeles Partners IX. 23.10.19(5) -- Angeles Partners X. 23.10.20(5) -- Angeles Partners XI. 23.10.21(5) -- Angeles Partners XII. 23.10.22(5) -- Angeles Partners XIV. 23.10.23(5) -- Consolidated Capital Institutional Properties/2. 23.10.24(5) -- Consolidated Capital Institutional Properties/3. 23.10.25(5) -- Consolidated Capital Properties III. 23.10.26(5) -- Consolidated Capital Properties IV. 23.10.27(5) -- Consolidated Capital Properties V. 23.10.28(5) -- Consolidated Capital Properties VI. 23.10.29(5) -- Davidson Diversified Real Estate I, L.P. 23.10.30(5) -- Davidson Diversified Real Estate II, L.P. 23.10.31(5) -- Davidson Diversified Real Estate III, L.P. 23.10.32(5) -- Davidson Growth Plus, L.P. 23.10.33(5) -- Davidson Income Real Estate, L.P. 23.10.34(5) -- Investors First-Staged Equity. 23.10.35(5) -- Johnstown/Consolidated Income Partners. 23.10.36(5) -- Multi-Benefit Realty Fund '87-1. 23.10.37(5) -- Shelter Properties III. 23.10.38(5) -- Shelter Properties VI. 23.10.39(5) -- Shelter Properties VII Limited Partnership. 23.10.40(5) -- U.S. Realty Partners Limited Partnership. 23.10.41(5) -- Shelter Properties IV 23.11 Consents of Deloitte & Touche 23.11.1 (5) -- HCW Pension Real Estate Fund Limited Partnership. 23.11.2 (5) -- United Investors Growth Properties. 23.11.3 (5) -- United Investors Growth Properties II. 23.11.4 (5) -- United Investors Income Properties. 23.11.5 (4) -- Ceader-Tree Investors Limited Partnership. 23.11.6 (4) -- Wingfield Investors Limited Partnership. 23.12 (4) Consents (1997 and 1996) of Reznick Fedder & Silverman (Burnsville Apartments, LP (Minneapolis Associates II Limited Partnership), Chestnut Hill Associates Limited Partnership, DFW Apartment Investors Limited Partnership, DFW Residential Investors Limited Partnership, Olde Mill Investors Limited Partnership, Park Towne Place Associates Limited Partnership and Texas Residential Investors Limited Partnership, Winthrop Apartment Investors Limited Partnership).
II-3 6261 (5).1 23 Riverside Park Associates L.P. 23.12.2 (5) -- Springhill Lake Investors Limited Partnership. 23.13 (4) Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership). 23.14 Consents of Imowitz Koenig LLP with respect to financial statements of the following entities: 23.14.1 (5) -- Winthrop Apartment Investors Limited Partnership. 23.14.2 (5) -- Winrock -- Houston Limited Partnership. 23.14.3 (5) -- Century Properties Fund XVI. 23.14.4 (5) -- Century Properties Fund XVIII. 23.14.5 (5) -- Century Properties Fund XIX. 23.14.6 (5) -- Century Properties Growth Fund XXII. 23.14.7 -- [Reserved]. 23.14.8 (5) -- Fox Strategic Housing Income Partners. 23.14.9 (5) -- National Property Investors 8. 23.14.10(5) -- Winthrop Growth Investors 1 Limited Partnership. 23.15.1 (5) Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert Real Estate Associates II). 23.16 (4) Consent of Beers & Cutler PLLC (Realty Investment Apartment Communities I) 23.17 (4) Consent of Ernst & Young LLP, Denver, Colorado. 24.1 (5) Power of Attorney for Apartment Investment and Management Company. 24.2 (5) Power of Attorney for AIMCO Properties, L.P. 99.1 (6) Physical Inspection Reports of Adjuster's International, Inc. relating to Shelter Properties IV 99.2 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Landmark Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property." 99.3 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Orchard Park Apartments, Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.4 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Park Towne Associates Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.5 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Salem Arms of Augusta Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.6 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Snowden Village Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property." 99.7 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Sturbrook Investors, Ltd. in the Section "Your Partnership -- Your Partnership and its Property." 99.8 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Sycamore Creek Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property." 99.9 (4) Summary of Appraisal for Timber Ridge Apartments (Sharon Woods, L.P.) 99.10 (4) Summary of Appraisal for Landmark Woods Apartments (Landmark Associates, Ltd.) 99.11 (4) Summary of Appraisal for Scotch Pines East Apartments (CallMart Fort Collins Ltd.)
II-4 6262 99.12 (4) Summary of Appraisal of Sycamore Creek Apartments, (Sycamore Creek Associates, L.P.) 99.13 (4) Summary of Appraisal of Buccaneer Trace Apartments (Buccaneer Trace Limited Partnership)
- --------------- (1) Incorporated by reference from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994. (2) To be filed by amendment. (3) Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998. (4) Filed herewith. (5) Previously filed. (6) Incorporated by reference from AIMCO Properties, L.P.'s Schedule 13E-3 filed on February 12, 1999. (b) Financial Statement Schedules Not Applicable. (c) Report, opinion or appraisal (i)See Appendix A to each Prospectus Supplement. (ii) Summaries of appraisals referred to in the Prospectus Supplement of Shelter Properties IV in the Section "Fairness of the Offer -- Appraisals" are incorporated by reference to Exhibit (z)(I) to the Form 14D-1 of Shelter Properties IV filed by Cooper River Properties, L.L.C. on July 21, 1998. ITEM 22. UNDERTAKINGS. (a) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, as amended, each filing of the registrants' annual reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit II-5 6263 plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (f) The undersigned registrants hereby undertake to not issue securities under this registration statement in order to effect any "roll-up transaction" (as such term is defined paragraph (c) of Item 901 of Regulation S-K). Furthermore, the undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning an offer to purchase partnership interests in exchange for securities issued under this registration statement, prior to commencing such an offer, if pursuant to the provisions of subparagraph (iv), (vii) or (viii) of paragraph (c)(2) of Item 901 of Regulation S-K, such transaction would be excluded from the definition of a "roll-up transaction." II-6 6264 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Apartment Investment and Management Company has duly caused this Amendment No. 8 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on the 11th day of March, 1999. APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ PETER K. KOMPANIEZ ---------------------------------- Peter K. Kompaniez, Vice Chairman and President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 8 to the Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY CONSIDINE* Chairman and Chief Executive March 11, 1999 - ----------------------------------------------------- Officer Terry Considine /s/ PETER K. KOMPANIEZ Vice Chairman and President March 11, 1999 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and March 11, 1999 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts /s/ RICHARD S. ELLWOOD* Director March 11, 1999 - ----------------------------------------------------- Richard S. Ellwood /s/ J. LANDIS MARTIN* Director March 11, 1999 - ----------------------------------------------------- J. Landis Martin /s/ THOMAS L. RHODES* Director March 11, 1999 - ----------------------------------------------------- Thomas L. Rhodes /s/ JOHN D. SMITH* Director March 11, 1999 - ----------------------------------------------------- John D. Smith *By: /s/ PETER K. KOMPANIEZ ------------------------------------------------ Peter K. Kompaniez, as Attorney-in-Fact for each of the persons indicated
6265 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, AIMCO Properties, L.P. has duly caused this Amendment No. 8 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on the 11th day of March, 1999. AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. its General Partner By: /s/ PETER K. KOMPANIEZ ---------------------------------- Peter K. Kompaniez, Vice Chairman and President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 8 to the Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY CONSIDINE* Chairman and Chief March 11, 1999 - ----------------------------------------------------- Executive Officer Terry Considine /s/ PETER K. KOMPANIEZ Vice Chairman and President March 11, 1999 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and March 11, 1999 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts *By: /s/ PETER K. KOMPANIEZ ------------------------------------------------ Peter K. Kompaniez, as Attorney-in-Fact for each of the persons indicated
6266 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 (1) Specimen certificate for Class A Common Stock. 4.2 (1) Specimen certificate for Common OP Unit. 5.1 (2) Opinion of Piper & Marbury L.L.P. regarding the validity of the Class A Common Stock and Preferred Stock offered hereby. 5.2 (2) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding the validity of the Common OP Units and the Preferred OP Units offered hereby. 8.1 (4) Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters. 12.1 (5) Calculation of ratio of earnings to fixed charges. 12.2 (5) Calculation of ratio of earnings to combined fixed charges and preferred stock dividends. 23.1 (4) Consent of Ernst & Young LLP, Dallas, Texas. 23.2 (4) Consent of Ernst & Young LLP, Chicago, Illinois. 23.3 (4) Consent of Ernst & Young LLP, Greenville, South Carolina. 23.4 (4) Consent of Ernst & Young LLP, Indianapolis, Indiana. 23.5 (5) Consent of Arthur Andersen LLP. 23.6 (2) Consent of Piper & Marbury L.L.P. (included in opinion filed as Exhibit 5.1). 23.7 (2) Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in opinion filed as Exhibit 5.2). 23.8 Consents of KPMG Peat Marwick LLP with respect to financial statements of the following entities: 23.8.1 (4) -- Baywood Partners, Ltd. 23.8.2 (4) -- Burgundy Court Associates, L.P. 23.8.3 (4) -- Catawba Club Associates, L.P. 23.8.4 (4) -- Georgetown of Columbus Associates, L.P. 23.8.5 (4) -- La Colina Partners, Ltd. 23.8.6 (4) -- Lake Eden Associates, L.P. 23.8.7 (4) -- Landmark Associates, Ltd. 23.8.8 (4) -- Northbrook Apartments, Ltd. 23.8.9 (4) -- Shaker Square, L.P. 23.8.10 (4) -- Thurber Manor Associates, Limited Partnership. 23.8.11 (4) -- Quail Run Associates, L.P. 23.8.12 (4) -- Sycamore Creek Associates, L.P. 23.9 (5) Consent of Portock, Bye & Co. (Brampton Associates Partnership). 23.10 Consents of Ernst & Young LLP, Greenville, South Carolina with respect to financial statements of the following entities: 23.10.1 (4) -- Rivercreek Apartments Limited Partnership. 23.10.2 (4) -- Shearson/Calmark Heritage Park II Ltd. 23.10.3 (4) -- Yorktown Towers Associates. 23.10.4 (4) -- Shannon Manor Apartments, a Limited Partnership. 23.10.5 (4) -- Woodmere Associates, L.P. 23.10.6 (4) -- Salem Arms of Augusta Limited Partnership.
6267
EXHIBIT NUMBER DESCRIPTION ------- ----------- 23.10.7 (4) -- Coastal Commons Limited Partnership. 23.10.8 (4) -- Snowden Village Associates, L.P. 23.10.9 (4) -- Sharon Woods, L.P. 23.10.10(4) -- Rivercrest Apartments, Limited. 23.10.11(5) -- Angeles Income Properties, Ltd. II. 23.10.12(5) -- Angeles Income Properties, Ltd. III. 23.10.13(5) -- Angeles Income Properties, Ltd. IV. 23.10.14(5) -- Angeles Income Properties, Ltd. 6. 23.10.15(5) -- Angeles Opportunity Properties, Ltd. 23.10.16(5) -- Angeles Partners VII. 23.10.17(5) -- Angeles Partners VIII. 23.10.18(5) -- Angeles Partners IX. 23.10.19(5) -- Angeles Partners X. 23.10.20(5) -- Angeles Partners XI. 23.10.21(5) -- Angeles Partners XII. 23.10.22(5) -- Angeles Partners XIV. 23.10.23(5) -- Consolidated Capital Institutional Properties/2. 23.10.24(5) -- Consolidated Capital Institutional Properties/3. 23.10.25(5) -- Consolidated Capital Properties III. 23.10.26(5) -- Consolidated Capital Properties IV. 23.10.27(5) -- Consolidated Capital Properties V. 23.10.28(5) -- Consolidated Capital Properties VI. 23.10.29(5) -- Davidson Diversified Real Estate I, L.P. 23.10.30(5) -- Davidson Diversified Real Estate II, L.P. 23.10.31(5) -- Davidson Diversified Real Estate III, L.P. 23.10.32(5) -- Davidson Growth Plus, L.P. 23.10.33(5) -- Davidson Income Real Estate, L.P. 23.10.34(5) -- Investors First-Staged Equity. 23.10.35(5) -- Johnstown/Consolidated Income Partners. 23.10.36(5) -- Multi-Benefit Realty Fund '87-1. 23.10.37(5) -- Shelter Properties III. 23.10.38(5) -- Shelter Properties VI. 23.10.39(5) -- Shelter Properties VII Limited Partnership. 23.10.40(5) -- U.S. Realty Partners Limited Partnership. 23.10.41(5) -- Shelter Properties IV 23.11 Consents of Deloitte & Touche. 23.11.1 (5) -- HCW Pension Real Estate Fund Limited Partnership. 23.11.2 (5) -- United Investors Growth Properties. 23.11.3 (5) -- United Investors Growth Properties II. 23.11.4 (5) -- United Investors Income Properties. 23.11.5 (4) -- Ceader-Tree Investors Limited Partnership. 23.11.6 (4) -- Wingfield Investors Limited Partnership.
6268
EXHIBIT NUMBER DESCRIPTION ------- ----------- 23.12 (4) Consents (1997 and 1996) of Reznick Fedder & Silverman (Burnsville Apartments, LP (Minneapolis Associates II Limited Partnership), Chestnut Hill Associates Limited Partnership, DFW Apartment Investors Limited Partnership, DFW Residential Investors Limited Partnership, Olde Mill Investors Limited Partnership, Park Towne Place Associates Limited Partnership and Texas Residential Investors Limited Partnership, Winthrop Apartment Investors Limited Partnership). 23.12.1 (5) -- Riverside Park Associates L.P. 23.12.2 (5) -- Springhill Lake Investors Limited Partnership. 23.13 (4) Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership). 23.14 Consents of Imowitz Koenig LLP with respect to financial statements of the following entities: 23.14.1 (5) -- Winthrop Apartment Investors Limited Partnership. 23.14.2 (5) -- Winrock -- Houston Limited Partnership. 23.14.3 (5) -- Century Properties Fund XVI. 23.14.4 (5) -- Century Properties Fund XVIII. 23.14.5 (5) -- Century Properties Fund XIX. 23.14.6 (5) -- Century Properties Growth Fund XXII. 23.14.7 -- [Reserved]. 23.14.8 (5) -- Fox Strategic Housing Income Partners. 23.14.9 (5) -- National Property Investors 8. 23.14.10(5) -- Winthrop Growth Investors 1 Limited Partnership. 23.15.1 (5) Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert Real Estate Associates II). 23.16 (4) Consent of Beers & Cutler PLLC (Realty Investment Apartment Communities I). 23.17 (4) Consent of Ernst & Young, LLP, Denver, Colorado. 24.1 (5) Power of Attorney for Apartment Investment and Management Company. 24.2 (5) Power of Attorney for AIMCO Properties, L.P. 99.1 (6) Physical Inspection Reports of Adjuster's International, Inc. relating to Shelter Properties IV. 99.2 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Landmark Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property." 99.3 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Orchard Park Apartments, Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.4 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Park Towne Associates Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.5 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Salem Arms of Augusta Limited Partnership in the Section "Your Partnership -- Your Partnership and its Property." 99.6 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Snowden Village Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property."
6269
EXHIBIT NUMBER DESCRIPTION ------- ----------- 99.7 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Sturbrook Investors, Ltd. in the Section "Your Partnership -- Your Partnership and its Property." 99.8 (4) Physical inspection report of Adjuster's International, Inc. referred to in the Prospectus Supplement of Sycamore Creek Associates, L.P. in the Section "Your Partnership -- Your Partnership and its Property." 99.9 (4) Summary of Appraisal for Timber Ridge Apartments (Sharon Woods, L.P.) 99.10 (4) Summary of Appraisal for Landmark Woods Apartments (Landmark Associates, Ltd.) 99.11 (4) Summary of Appraisal for Scotch Pines East Apartments (CallMart Fort Collins Ltd.) 99.12 (4) Summary of Appraisal of Sycamore Creek Apartments, (Sycamore Creek Associates, L.P.) 99.13 (4) Summary of Appraisal of Buccaneer Trace Apartments (Buccaneer Trace Limited Partnership)
- --------------- (1) Incorporated by reference from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994. (2) To be filed by amendment. (3) Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998. (4) Filed herewith. (5) Previously filed. (6) Incorporated by reference from AIMCO Properties, L.P.'s Schedule 13E-3 filed on February 12, 1999. (b) Financial Statement Schedules Not Applicable. (c) Report, opinion or appraisal (i) See Appendix A to each Prospectus Supplement. (ii) Summaries of appraisals referred to in the Prospectus Supplement of Shelter Properties IV in the Section "Fairness of the Offer -- Appraisals" are incorporated by reference to Exhibit (z)(I) to the Form 14D-1 of Shelter Properties IV filed by Cooper River Properties, L.L.C. on July 21, 1998. EX-8.1 2 FORM OF OPINION OF SKADDEN, ARPS., RE: TAX MATTERS 1 EXHIBIT 8.1 FORM OF TAX OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP _____________ ___, 1999 Apartment Investment and Management Company 1873 South Bellaire Street Suite 1700 Denver, Colorado 80222 AIMCO Properties, L.P. 1873 South Bellaire Street Suite 1700 Denver, Colorado 80222 Re: Certain Federal Income Tax Consequences Ladies and Gentlemen: You have requested our opinion concerning certain Federal income tax considerations in connection with the exchange offers (the "Offers") by AIMCO Properties, L.P., a Delaware limited partnership (the "AIMCO Operating Partner ship"), of limited partnership units of the partnerships indicated on Exhibit A attached hereto (the "Target Partnerships") in exchange for cash, AIMCO Operating Partner ship Preferred Units ("Preferred OP Units") and/or AIMCO Operating Partnership Common Units ("Common OP Units") as more fully described in (i) the Registration Statement on Form S-4 (No. 333-60355) initially filed with the Securities and Exchange Commission on July 31, 1998, as amended (the "Registration Statement"), (ii) the prospectus, dated ____________ ___, 1999 (the "Base Prospectus"), included as part of the Registration Statement, and (iii) the prospectus supplements relating to the Offers (the "Prospectus Supplements"), included as part of the Registration Statement. All capitalized terms used herein, unless otherwise specified, shall have the meanings assigned to them in the Registration Statement. In connection with the Offers, we have acted as counsel to Apartment Investment and Management Company, a Maryland corporation ("AIMCO," and 2 together with its Subsidiaries (as defined below), the "Company"), and to the AIMCO Operating Partnership, and we have assisted in the preparation of the Registration Statement and certain other documents related to the Offers. In formulating our opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and such other documentation and information provided by you as are relevant to the Offers and necessary to prepare the Registration Statement or as we have deemed necessary or appropriate as a basis for the opinion set forth herein. In addition, you have provided us with certain representations and covenants of officers of the Company relating to, among other things, the actual and proposed operation of the Company. For purposes of our opinion, we have not made an independent investigation of the facts set forth in such representations, the partnership agreements and organizational documents for each of the partnerships and limited liability companies in which AIMCO holds a direct or indirect interest (the "Subsidiaries"), the Registration Statement or any other docu- ment. We have, consequently, assumed and relied upon your representations that the information presented in such documents or otherwise furnished to us accurately and completely describes all material facts relevant to our opinion. No facts have come to our attention, however, that would cause us to question the accuracy and completeness of such facts or documents in a material way. We have also relied upon the opinion of Piper & Marbury L.L.P. dated __________ ___, 1999 with respect to certain matters of Maryland law and the opinion of Altheimer & Gray dated May 8, 1998 with respect to the qualification of Ambassador Apartments, Inc., as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") for its taxable year ended December 31, 1994 and all subsequent taxable years ending on or before May 8, 1998 (including the short taxable year ending on or before May 8, 1998). In addition, we have assumed the qualification of Insignia Properties Trust as a REIT under the Code and have relied upon the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. dated October 1, 1998 in this regard. In rendering our opinion, we have assumed that the transactions contemplated by the foregoing documents have been or will be consummated in accordance with the operative documents and that such documents accurately reflect the material facts of such transactions. In addition, our opinion is based on the correctness of the following specific assumptions: (i) each of AIMCO, the Subsidiaries, Property Asset Management Services, Inc., AIMCO/NHP Holdings, Inc., AIMCO/NHP Properties, Inc., NHP Management Company, NHP A&R Services, Inc., as well as each "qualified REIT subsidiary" of AIMCO (within the meaning of Section 856(i)(2) of the Code), has been and will continue to be operated in accordance with the laws of the jurisdiction in which it was formed and in the manner described in the relevant organizational documents and in the Registration Statement (including any docu- 2 3 ments incorporated therein by reference) and (ii) there have been no changes in the applicable laws of the State of Maryland or any other state under the laws of which any of the Subsidiaries have been formed. In rendering our opinion, we have also considered and relied upon the Code, the regulations promulgated thereunder (the "Regulations"), administrative rulings and the other interpretations of the Code and the Regulations by the courts and the Internal Revenue Service, all as they exist as of the date hereof. With respect to the latter assumption, it should be noted that the Code, Regulations, judicial decisions, and administrative interpretations are subject to change or differing interpretations at any time and, in some circumstances, with retroactive effect. Any material change which is made after the date hereof in any of the foregoing bases for our opinion could affect our conclusions herein. We express no opinion as to the laws of any jurisdiction other than the Federal laws of the United States of America to the extent specifically referred to herein. Based on and subject to the foregoing, we are of the opinion that: 1. Commencing with AIMCO's initial taxable year ended December 31, 1994, AIMCO was organized in conformity with the requirements for qualification as a REIT under the Code, and its actual method of operation has enabled, and its proposed method of operation will enable, AIMCO to meet the requirements for qualification and taxation as a REIT. As noted in the Registration Statement, AIMCO's qualification and taxation as a REIT depend upon its ability to meet, through actual annual operating results, certain requirements, including requirements relating to distribution levels and diversity of stock ownership, and the various qualification tests imposed under the Code, the results of which will not be reviewed by us. Accordingly, no assurance can be given that the actual results of AIMCO's operation for any one taxable year will satisfy the requirements for taxation as a REIT under the Code. 2. The AIMCO Operating Partnership will be treated as a partnership and not as an association taxable as a corporation for United States Federal income tax purposes. 3. Although the discussion set forth in the Base Prospectus under the captions "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS" and "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNIT HOLDERS" and in the Prospectus Supplements under the caption "CERTAIN FEDERAL INCOME TAX CONSE QUENCES" does not purport to discuss all possible United States Federal income 3 4 tax consequences of the Offers, and of the acquisition, ownership and disposition of the Preferred OP Units, the Common OP Units and the AIMCO Stock, such discussion, although general in nature, constitutes, in all material respects, a fair and accurate summary under current law of certain material United States Federal income tax consequences of the Offers and of the acquisition, ownership and disposition of the Preferred OP Units, the Common OP Units and the AIMCO Stock by a holder who acquires such Preferred OP Units, Common OP Units and the AIMCO Stock in connection with the Offers, subject to the qualifications set forth therein. The United States Federal income tax consequences of the Offers and of an investment in the Preferred OP Units, the Common OP Units and the AIMCO Stock by an investor will depend upon the holder's particular situation, and we express no opinion as to the completeness of the discussion set forth in the Base Prospectus under the captions "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS" and "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNIT HOLDERS" and in the Prospectus Supplements under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" as applied to any particular holder. Other than as expressly stated above, we express no opinion on any issue relating to AIMCO, the Subsidiaries, the AIMCO Operating Partnership, the Target Partnerships or to any investment therein. This opinion is intended for the use of the addressees and the owners of the partnership units of the Target Partnerships and, except as set forth herein, it may not be used, circulated, quoted or relied upon for any other purpose without our prior written consent. We consent to the use of this opinion by the addressees and the owners of the partnership units of the Target Partnership in connection with the Offers. We also consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to Skadden, Arps, Slate, Meagher & Flom LLP under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category or persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules or regulations of the Securities and Exchange Commission thereunder. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of any subsequent changes of the matters stated, represented, covenanted or assumed herein or any subsequent changes in applicable law. Very truly yours, 4 5 Exhibit A [List of Partnerships To Come] 5 EX-23.1 3 CONSENT OF ERNST & YOUNG LLP - DALLAS, TX 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement on Form S-4 and related Prospectus of Apartment Investment and Management Company for the registration of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for the registration of Partnership Preferred Units and Partnership Common Units, and (i) to the incorporation by reference therein of our report dated March 6, 1998, except for Note 25, as to which the date is March 17, 1998, with respect to the consolidated financial statements and schedule of Apartment Investment and Management Company included in its Annual Report (Form 10-K/A) for the year ended December 31, 1997; and (ii) to the inclusion therein of our report dated March 6, 1998, except for Note 21, as to which the date is June 5, 1998, with respect to the consolidated financial statements and schedule of AIMCO Properties, L.P. included in its Registration Statement on Form 10, all filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Dallas, Texas March 10, 1999 EX-23.2 4 CONSENT OF ERNST & YOUNG LLP - CHICAGO, IL 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement (Form S-4 No. 333-60355) and related Prospectus of Apartment Investment and Management Company (AIMCO) and AIMCO Properties, L.P. for the registration of Preferred Stock and Class A Common Stock of AIMCO and Partnership Preferred Units and Partnership Common Units of AIMCO Properties, L.P., and to the incorporation by reference therein of our report dated January 30, 1998 (except for Note 19, as to which the date is March 5, 1998), with respect to the consolidated financial statements and schedule of Ambassador Apartments, Inc. (Ambassador) as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (as amended on April 3, 1998), and our report dated January 27, 1997 (except for Note 15, as to which the date is March 13, 1997 and Note 2(J), as to which the date is March 31, 1997), with respect to the consolidated financial statements and schedule of Ambassador as of December 31, 1996 and 1995, and for each of the two years in the period ended December 31, 1996 and the period from August 31, 1994 through December 31, 1994, and the combined financial statements of Prime Properties (Predecessor to Ambassador) for the period from January 1, 1994 through August 30, 1994, included in Amendment No. 1 filed on February 6, 1998 to AIMCO's Current Report on Form 8-K dated December 23, 1997, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Chicago, Illinois March 10, 1999 EX-23.3 5 CONSENT OF ERNST & YOUNG LLP - GREENVILLE, SC 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement (Form S-4 No. 333-60355) and related Prospectus of Apartment Investment and Management Company for the registration of $600,000,000 of its Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for the registration of $200,000,000 of its Partnership Preferred Units and $200,000,000 of its Partnership Common Units and to the incorporation by reference therein of our report dated February 13, 1998, except for Note 20, as to which the date is March 19, 1998, with respect to the consolidated financial statements of Insignia Financial Group, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997 included as exhibit 99.2 in Apartment Investment and Management Company's Current Report on Form 8-K dated March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998), filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP --------------------- Greenville, South Carolina March 10, 1999 EX-23.4 6 CONSENT OF ERNST & YOUNG LLP - INDIANAPOLIS, IN 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement on Form S-4 and related Prospectus of Apartment Investment and Management Company for the registration of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for the registration of $200,000,000 of its Partnership Preferred Units and Partnership Common Units, and to the incorporation by reference therein of our report dated March 27, 1998, except for Note 1, as to which the date is September 24, 1998, with respect to the Historical Summary of Gross Income and Direct Operating Expenses of Sun Lake Apartments for each of the three years in the period ended December 31, 1997 included in Amendment No. 3 to Apartment Investment and Management Company's Current Report on Form 8-K dated November 2, 1998 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Indianapolis, Indiana March 10, 1999 EX-23.8.1 7 BAYWOOD PARTNERS LIMITED 1 EXHIBIT 23.8.1 General Partners Baywood Partners, Limited: We consent to the use of our report with respect to the consolidated financial statements of Baywood Partners, Limited and its limited Partnership interest as of and for the year ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.2 8 BURGUNDY COURT ASSOCIATES, L.P. 1 EXHIBIT 23.8.2 General Partners Burgundy Court, Limited: We consent to the use of our reports with respect to the financial statements of Burgundy Court, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.3 9 CATAWBA CLUB ASSOCIATES, L.P. 1 EXHIBIT 23.8.3 General Partners Catawba Club Associates, Limited: We consent to the use of our reports with respect to the financial statements of Catawba Club Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Our report dated February 23, 1998, contains an explanatory paragraph that states that the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. Greenville, South Carolina March 12, 1999 EX-23.8.4 10 GEORGETOWN OF COLUMBUS ASSOCIATES, LP 1 EXHIBIT 23.8.4 General Partners Georgetown of Columbus Associates, Limited: We consent to the use of our reports with respect to the financial statements of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.5 11 LA COLINA PARTNERS, LTD 1 EXHIBIT 23.8.5 General Partners La Colina Partners, Limited: We consent to the use of our report with respect to the consolidated financial statements of La Colina Partners, Limited and its limited Partnership interest as of and for the year ended December 31, 1997 and included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.6 12 LAKE EDEN ASSOCIATES LP 1 EXHIBIT 23.8.6 General Partners Lake Eden, Limited: We consent to the use of our reports with respect to the financial statements of Lake Eden, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.7 13 LANDMARK ASSOCIATES, LTD 1 EXHIBIT 23.8.7 General Partners Landmark Associates, Limited: We consent to the use of our reports with respect to the financial statements of Landmark Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.8 14 NORTHBROOK APARTMENTS, LTD 1 EXHIBIT 23.8.8 General Partners Northbrook Partners, Limited: We consent to the use of our report with respect to the consolidated financial statements of Northbrook Partners, Limited and its limited Partnership interest as of and for the year ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.9 15 SHAKER SQUARE LP 1 EXHIBIT 23.8.9 General Partners Shaker Square, Limited: We consent to the use of our report with respect to the financial statements of Shaker Square, Limited as of and for the year ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.10 16 THURBER MANOR ASSOCIATES, LIMITED PARTNERSHIP 1 EXHIBIT 23.8.10 General Partners Thurber Manor Associates, Limited: We consent to the use of our reports with respect to the financial statements of Thurber Manor Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.8.11 17 QUAIL RUN ASSOCIATES, LP 1 EXHIBIT 23.8.11 General Partners Quail Run Associates, L.P.: We consent to the use of our reports with respect to the financial statements of Quail Run Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Our report dated February 24, 1998, contains an explanatory paragraph that states that the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. Greenville, South Carolina March 12, 1999 EX-23.8.12 18 SYCAMORE CREEK ASSOCIATES, LP 1 EXHIBIT 23.8.12 General Partners Sycamore Creek Associates, Limited: We consent to the use of our reports with respect to the financial statements of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 included herein and to the reference to our firm under the heading "Experts" in the prospectus supplement. Greenville, South Carolina March 12, 1999 EX-23.10.1 19 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP 1 EXHIBIT 23.10.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 31, 1998, with respect to the financial statements of Rivercreek Apartments Limited Partnership for the year ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Rivercreek Apartments Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.2 20 SHEARSON/CALMARK HERITAGE PARK II LTD 1 EXHIBIT 23.10.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 17, 1998 and March 19, 1997, with respect to the financial statements of Calmark Heritage Park II, A Limited Partnership for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Calmark Heritage Park II, A Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.3 21 YORKTOWN TOWERS ASSOCIATES 1 EXHIBIT 23.10.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 13, 1998 and March 4, 1997, with respect to the financial statements of Yorktown Towers Associates for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Yorktown Towers Associates. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.4 22 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP 1 EXHIBIT 23.10.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 10, 1998 and February 10, 1997, with respect to the financial statements of Shannon Manor Apartments, A Limited Partnership for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Shannon Manor Apartments, A Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.5 23 WOODMERE ASSOCIATES, L.P. 1 EXHIBIT 23.10.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 9, 1998 and February 25, 1997, with respect to the financial statements of Woodmere Associates, L.P. for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Woodmere Associates, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.6 24 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP 1 EXHIBIT 23.10.6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 10, 1998 and February 10, 1997, with respect to the financial statements of Salem Arms of Augusta Limited Partnership for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Salem Arms of Augusta Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.7 25 COASTAL COMMONS LIMITED PARTNERSHIP 1 EXHIBIT 23.10.7 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 31, 1998, with respect to the consolidated financial statements of Coastal Commons Limited Partnership for the year ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Coastal Commons Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.8 26 SNOWDEN VILLAGE ASSOCIATES L.P. 1 EXHIBIT 23.10.8 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 1, 1998, with respect to the financial statements of Snowden Village Associates Limited Partnership for the year ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Snowden Village Associates Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.9 27 SHARON WOODS, L.P. 1 EXHIBIT 23.10.9 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 31, 1998, with respect to the Consolidated financial statements of Sharon Woods Limited Partnership for the year ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Sharon Woods Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.10.10 28 RIVERCREST APARTMENTS, LIMITED 1 EXHIBIT 23.10.10 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 31, 1998, with respect to the financial statements of Rivercrest Apartments Limited Partnership for the year ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P., dated March 15, 1999, related to the offer to acquire units of limited partnership interest of Rivercrest Apartments Limited Partnership. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 9, 1999 EX-23.11.5 29 CEADER-TREE INVESTORS LIMITED PARTNERSHIP 1 EXHIBIT 23.11.5 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our reports dated February 17, 1998 (March 17, 1998 with respect to Note 6) and February 21, 1997, on the financial statements of Cedar Tree Investors Limited Partnership as of December 31, 1997, and 1996 and for each of the three years in the period ended December 31, 1997, and to the reference to Deloitte & Touche LLP under the heading "Experts" in the Prospectus which is part of this Registration Statement. Deloitte & Touche LLP Green, South Carolina March 11, 1999 EX-23.11.6 30 WINGFIELD INVESTORS LIMITED PARTNERSHIP 1 EXHIBIT 23.11.6 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our reports dated February 17, 1998 (March 17, 1998 with respect to Note 6) and February 21, 1997, on the financial statements of Wingfield Investors Limited Partnership as of December 31, 1997, and 1996 and for each of the three years in the period ended December 31, 1997, and to the reference to Deloitte & Touche LLP under the heading "Experts" in the Prospectus which is part of this Registration Statement. Deloitte & Touche LLP Green, South Carolina March 11, 1999 EX-23.12 31 CONSENTS OF REZNICK FEDDER & SILVERMAN 1 EXHIBIT 23.12 [REZNICK FEDDER & SILVERMAN LETTERHEAD] CONSENT OF REZNICK FEDDER & SILVERMAN ---------------- We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated as per the attached schedule, with respect to the financial statements per the attached schedule for the year ended December 31, 1997, in the Registration Statement Form S-4 (No. 333-60355) of Apartment Investment and Management Company and AIMCO Properties, L.P. REZNICK FEDDER & SILVERMAN /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland March 11, 1999 2 ATTACHMENT SCHEDULE
1996 Partnership Name Report Date Burnsville Apartments L.P. February 14, 1997 Chestnut Hill Associates L.P. February 7, 1997 DFW Apartment Investors L.P. February 7, 1997 DFW Residential Investors L.P. February 21, 1997 Olde Mill Investors L.P. February 7, 1997 Park Towne Place Associates L.P. January 24, 1997 Texas Residential Investors L.P. February 21, 1997 Winthrop Texas Investors L.P. January 31, 1998
3 [REZNICK FEDDER & SILVERMAN LETTERHEAD] CONSENT OF REZNICK FEDDER & SILVERMAN ---------------- We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated as per the attached schedule, with respect to the financial statements per the attached schedule for the year ended December 31, 1996, in the Registration Statement Form S-4 (No. 333-60355) of Apartment Investment and Management Company and AIMCO Properties, L.P. REZNICK FEDDER & SILVERMAN /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland March 11, 1999 4 ATTACHMENT SCHEDULE
1997 Partnership Name Report Date Burnsville Apartments L.P. February 4, 1998 Chestnut Hill Associates L.P. February 2, 1998 DFW Apartment Investors L.P. February 12, 1998 DFW Residential Investors L.P. February 10, 1998 Olde Mill Investors L.P. February 11, 1998 Park Towne Place Associates L.P. February 18, 1998 Texas Residential Investors L.P. February 9, 1998 Winthrop Texas Investors L.P. January 31, 1998
EX-23.13 32 CONSENT OF BARRY S. FISHMAN & ASSOCIATES 1 EXHIBIT 23.13 [BARRY S. FISHMAN & ASSOCIATES LETTERHEAD] CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our report dated December 21, 1998, with respect to the financial statements of Ravensworth Associates Limited Partnership for the years ended December 31, 1997 and December 31, 1996, in the Registration Statement Form S-4 of AIMCO Properties, L.P. /s/ BARRY S. FISHMAN & ASSOCIATES, CHARTERED Bethesda, Maryland March 10, 1999 EX-23.16 33 CONSENT OF BEERS & CUTLER PLLC 1 EXHIBIT 23.16 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement on Form S-4 and related Prospectus of Apartment Investment and Management Company for the registration of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for the registration of Partnership Preferred Units and Partnership Common Units, and to the incorporation by reference therein of our reports (i) dated February 11, 1998, except for Note 1 as to which the date is October 16, 1998, with respect to the audit of the Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities I included as Exhibit 99.2 in Apartment Investment and Management Company's Current Report on Form 8-K dated November 2, 1998; and (ii) dated January 28, 1998, except for Note 1 as to which the date is July 24, 1998, with respect to the audit of the Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities II included as Exhibit 99.3 in Apartment Investment and Management Company's Current Report on Form 8-K dated November 2, 1998, all filed with the Securities and Exchange Commission. /s/ BEERS & CUTLER PLLC Washington, D.C. March 10, 1999 EX-23.17 34 CONSENT OF ERNST & YOUNG LLP - DENVER, CO 1 EXHIBIT 23.17 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 8 to the Registration Statement on Form S-4 and related Prospectus of Apartment Investment and Management Company for the registration of Preferred Stock and Class A Common Stock and of AIMCO Properties, L.P. for the registration of $200,000,000 of its Partnership Preferred Units and Partnership Common Units, and to the incorporation by reference therein of our reports (i) dated June 26, 1998 with respect to the Combined Historical Summary of Gross Income and Direct Operating Expenses of Cirque Apartment Communities included in Apartment Investment and Management Company's Current Report on Form 8-K dated November 2, 1998; and (ii) dated November 10, 1998 with respect to the Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Apartments included in Apartment Investment and Management Company's Current Report of Form 8-K dated December 21, 1998, all filed with the Securities and Exchange Commission. /s/Ernst & Young LLP Denver, Colorado March 10, 1999 EX-99.2 35 PHYSICAL INSPECTION REPORT-LANDMARK ASSOCIATES 1 EXHIBIT 99.2 LANDMARK WOODS APARTMENTS 1400 CHEROKEE ROAD FLORENCE, SOUTH CAROLINA 29501 (803) 665-5809 PHYSICAL INSPECTION 2 LANDMARK WOODS APARTMENTS Property was built in 1974 Date of Major Renovations: 1989 (roofs); 1998 (siding and paint) Number of Units: 104 Number of Buildings: 13 apartment buildings with 2 independent free standing building (Office and maintenance shop) 2 3 ROOFS The type roofing on this property consists of 220#, 3-tab composition shingles on gable roof structure. The gable roof structure appears to be at a 4/12 pitch. General roofing condition is average and property manager reported no leaks or problems at this time. All roofs on property were addressed in 1989 after Hurricane Hugo. Roofs on property are 10 years old and should have a life expectancy of approximately 8-10 years depending upon weather conditions. Attached budget addresses general maintenance and repairs to roofs as needed throughout property. GUTTERS AND DOWNSPOUTS This property is equipped with residential grade gutters and downspouts on all buildings throughout property. Gutters system appears to be adequate to the needs of the property. All downspouts in gutter system have splash blocks installed. Overall gutter system is in average condition and will require some repairs due to dents and gutters pulling away from buildings in certain areas. Budget addresses general repairs and cleaning of gutter system as needed. HVAC The heating on this property is obtained by an electric heat strip system. The cooling is obtained through a split system with 1 1/2 ton for one and two bedroom units and 2 ton for three bedroom units. All condensing units are located on concrete pads next to buildings. The interior air handler units are located in a utility closet in the hall of the individual units. Interior air handler units appear to be in fair condition. There are outside disconnects on all A/C units. Approximately 75% of the HVAC units on property are original and will require attention in the next 3-years due to age and wear. Property manager stated that the remaining HVAC units that are not original to property have been replaced in the last five years. Attached budget addresses general repair and maintenance as needed throughout property. PLUMBING Main exterior, cold water lines are 2 1/2 inch copper pipe as per property management. Main cold water lines are buried and not insulated. There are two cold water gate shut-offs per building on property. The domestic water supply in each unit is obtained by copper pipe. The DWV system is all PVC plastic pipe. There is one hose bib per building on property for a total thirteen throughout property. Each unit is equipped with one 1/3 H.P. garbage disposal. Brand name of garbage disposal in individual unit that was inspected was Badger. All individual units throughout property have washer/dryer hook-ups. Overall condition of plumbing system appeared to be adequate with no major deficiencies reported at time of inspection. Budget addresses minor plumbing repair and maintenance as needed. 3 4 HOT WATER Hot water on this property is obtained through electric 40-gallon "low boy" hot water heaters. The hot water heaters are located in the hall utility closet of each unit. Property manager stated that fifteen units were replaced last year and approximately 60% are original to property. There were no problems reported with hot water system at time of inspection and hot water heaters appeared to be functioning adequately. Budget allows for routine maintenance and repair as needed throughout property. ELECTRICAL Entire property is individually metered for electricity. Exterior wiring from transformer to meters is aluminum. Exterior wiring from meter to interior breaker panels is aluminum. Interior wiring from breaker panel to plugs is copper for all individual units. Interior electrical supply is from a 100 AMP Bryant breaker panel. There are no GFI circuits located inside any individual unit on property. No problems were reported with the interior electrical systems and equipment, and there were no major deficiencies in the exterior electrical systems noted on inspection. There are thirteen transformers on this property, which appear to be in average condition, with no leaks visible. Budget addresses installation of one GFI circuit per individual unit and general repairs as needed. 4 5 EXTERIOR SURFACES SIDING The buildings on this property are standard wood framing with an exterior surface of 95% brick veneer and 5% painted wood siding. The fascia and soffits throughout property are painted wood and appear to be in good condition. Overall condition of brick veneer siding is good with no apparent problems. All wood siding and paint was addressed in 1998 budget and renovation. Attached budget addresses routine maintenance and repair as needed thoughout property. STAIRWELLS The are no exterior stairwells located on this property. All stairwells are located in the interior entryway of the buildings. Interior stairwells consist of metal stringers with metal railing and wood treads. Wood treads on stairwells are covered with indoor/outdoor carpet that appears to be in average condition. All stairwell landings on property are lightweight concrete in metal pan. Condition of stairwells throughout property is good and will require only minor repairs in the form of tread and carpet replacement. Budget addresses general repairs as needed throughout property. BALCONIES The second story balconies on this property consist of lightweight concrete in metal pan with metal railing enclosure. First floor patios are concrete slab on grade with no type of railing or fence enclosure. Balconies and patios were addressed in 1998 renovation and are in good condition. Budget addresses only minor repair and paint as needed throughout property. FOUNDATIONS All of the foundations for the buildings on this property consist of a grid style monolithic concrete slab with integral piers. There was no obvious foundation problems observed and no major deficiencies reported on this property at the time of inspection. However, a structural engineering report would be advised at this time to be positive there is no hidden damage, as not all foundation failures are visible from the building exterior. CONCRETE SIDEWALKS A minor amount of the sidewalks on this property have elevation changes, which are trip hazards. Repairs, in the form of grinding the sidewalks and removing and replacing certain sections of concrete should address any problems related to the sidewalks. Budget addresses repairs to concrete sidewalks as needed. 5 6 DRIVES AND PARKING LOTS The drives and parking lots on this property consist of asphalt. Woodstone drive and adjoining parking area received a 1 1/2 inch overlay last year and appears to be in good condition. Drive and parking area by office was resealed and striped in August 1998. The remaining drives and parking areas not addressed in 1997 and 1998 have cracks and pot holes and will require some attention at this time. Attached budget allows for repairing and resealing remaining areas of drives and parking lots that were not addressed in 1997 and 1998. WINDOWS The windows on this property are single glazed, sliding, aluminum framed windows. The windows are original to property and are beginning to show signs of wear around the caulking. Overall condition of the windows on this property is average and will require only minor repairs in the form of re-caulking and sealing around windows. Attached budget addresses general repair and resealing of windows as needed. EXTERIOR LIGHTING The exterior lighting on this property is comprised of few fixture types and styles that are located in the entryway of each building. There are approximately seventy-eight light fixtures throughout the property that are maintained by the property management. All seventy-eight lights are fluorescent and will not require conversion to reduce overall maintenance and electricity cost. Six yard pole security lights have been installed throughout the property, in the interest of safety. Security lighting appears to be insufficient in a few areas and a lighting survey is recommended in the interest of safety and avoiding liability problems. Attached budget addresses general repair and augmentation of security lighting as needed throughout property. LANDSCAPING AND IRRIGATION The landscaping on this property is in fair condition. Property does not have a sprinkler system. Numerous trees will have to be trimmed away from buildings and several bare areas will need to be addressed with landscaping. One tree located by building 919 has roots that are causing damage to a nearby sidewalk and will need to be removed to prevent further damage after sidewalk repair. Budget allows for tree removal and trimming and grass, scrub and fill dirt installation. DRAINAGE On the date of inspection there were no areas with standing water on the property. However, there were a few areas where grading away from buildings and sidewalks will have to be addressed. Majority of these problems should be solved with fill dirt, proper grading and landscaping without the need for the installation of additional drains or drain tile ("French drain"). Drainage away from the foundations appears to be fair. Budget addresses installation of fill dirt and proper grading along building foundations and sidewalks. 6 7 TERMITES On the day of our inspection there was no evidence of termites or prior termite activity noted. Manager advises that no termite activity has been noted in the last year and that the property was checked in May 1998. The property has an annual contract with a pest extermination service (Terminix Pest Control) which keeps any termite activity to a minimum. FENCING This is not a limited access community. Perimeter fencing on the sides of this property are owned and maintained by neighboring properties. There is no fencing in the front of this property. A small section of wood fencing in the rear area of this property is owned and maintained by the property. Property manager stated that the wood fence located in the rear of property was installed new in 1992. The wood fence appears to be in good condition. Budget addresses routine maintenance and repairs as needed. PARKING There are a total of 177 parking spaces on this property, of which none are covered parking. There are no spaces on property permanently reserved for the handicapped. Although, there are five areas temporarily reserved for the handicapped. There appears to be sufficient ADA access to the walkways and buildings from the parking lot. Striping in parking lots that have not been resealed is beginning to fade and deteriorate and will require resealing and restriping. Attached budget allows for resealing and restriping of parking lot areas that were not addressed in 1997 and 1998. LIFE SUPPORT SYSTEMS The one, two and three bedroom units are equipped with one battery-operated smoke detector. No exterior fire alarms were noted at any (each) building. There is currently one fire extinguisher located in each individual unit on this property. Attached budget allows for service and maintenance of life support systems as needed. There are no fire hydrants located on this property and only one fire hydrant located on the street by the property, which could be used for an emergency. 7 8 AMENITIES SWIMMING POOL There is one swimming pool on this property located by the office. The decking for all the pool is concrete with an epoxy aggregate no-skid surface and appears to be in good condition. The pool's coping, "tile-work" and plaster lining was replaced in 1995 and appears to be in good condition. Aluminum fencing surrounding pool was installed in May 1998 and is also in good condition. Pool pumps and filter equipment appeared to be functioning normally at time of inspection and should require only routine maintenance and service at this time. Attached budget addresses general repairs and maintenance as needed. HOT TUB There is no hot tub on this property. TENNIS COURT There is no tennis court on this property. RACQUET BALL COURT There is no racquet ball court on this property. WEIGHT ROOM There is no weight room on this property. PLAYGROUND There are no playgrounds on this property. SAND VOLLEYBALL There is no sand volleyball court on this property. LAUNDRY ROOM There is no laundry room on this property. 8 9 This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statements on the structural worthiness or integrity of the building(s); rather the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached pictures are representations of the property and should be independently evaluated by the recipient. 9 10 LANDMARK WOODS 1400 CHEROKEE ROAD EXTERIOR BUDGET: ROOFING Repairs $ 2,400.00 GUTTERS & DOWNSPOUTS General Repairs $ 2,120.00 HVAC Replacements & repairs $ 3,300.00 PLUMBING General repairs $ 1,125.00 HOT WATER General Repairs $ 1,250.00 ELECTRICAL Add GFI'S $ 7,575.00 SIDING/TRIM/FACIA/SOFFITS Minor repairs $ 2,550.00 EXTERIOR PAINT Paint Repair Area Only $ 3,890.00 STAIRWELLS General Repairs $ 1,890.00 BALCONIES Repairs $ 4,690.00 FOUNDATIONS Good $ 0.00 SIDEWALKS Replacement and repair $ 2,655.00 DRIVES & PARKING LOT Repairs & partial seal coat - at repairs $ 22,457.00 WINDOWS General Repairs $ 1,125.00 EXTERIOR LIGHTING Add Security lights $ 2,550.00 LANDSCAPE & IRRIGATION Substantial Tree Trimming & Sod replacement $ 54,960.00 DRAINAGE Fill & leval $ 6,000.00 TERMINTES No recent activity - annual contract $ 0.00 PARKING Restripe after repairs - only at repaired areas $ 3,960.00 LIFE SUPPORT SYSTEMS General Repairs $ 1,125.00 POOL General Repair $ 1,125.00 HOT TUB N/A $ 0.00 FENCE General Repairs $ 1,275.00 LAUNDRY ROOM N/A $ 0.00 SAND VOLLEYBALL COURT N/A $ 0.00 - ---------------------------------------------------------------------------------------------------------------- Total Budget: $128,022.00 ===========
11 LANDMARK WOODS 1400 CHEROKEE ROAD INVENTORY OFFICE 1) HP COMPUTER 2) 1HP PRINTER 3) 1 DESK 4) 1 FILE CABINETS 5) 2 CHAIRS 6) SHARP FAX MACHINE 7) SAFE 8) END TABLE 9) OAK FILE CABINET SHOP 10) VACUUM PUMP 11) POWER WAHSER 12) KEY MACHINE 13) SHAMPOO MACHINE 14) FREON RECOVERY 15) 4 LADDERS 16) NON-FLAMMABLE METAL STORAGE 17) PAINT SPRAYER 18) SEWER MACHINE 19) CARPET FAN 20) 2 HANDTRUCKS 21) 2 OAK DESK 22) FILE CABINET 23) TORCH SET 24) MISC. HAND TOOLS CLUBHOUSE 25) LOVESEAT 26) SOFA 27) COFFEE TABLE 28) 7 CHAIRS 29) 19" TV 30) MICROWAVE 31) GLASS TABLE 32) 2 SOFA TABLES 33) 2 END TABLES 34) TV CABINET 35) MAGNAVOX VCR 36) RCA RADIO 37) GE MICROWAVE LEASING OFFICE 38) 1 TABLE AND 2 CHAIRS 39) OAK FILE CABINET 12 40) OAK DESK 41) SMITH CORONA TYPEWRITER 42) CANON COPIER 13 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] SIGN AT ENTRANCE 14 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] STYLE OF CONSTRUCTION AND SIDING 15 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURES] A/C UNITS ON SLAB WITH DISCONNECTS 16 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] INTERIOR STAIRWELL 17 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURES] GUTTERS 18 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURES] EXTERIOR LIGHT 19 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURES] SIDEWALK TRIP HAZARD 20 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] HANDICAP PARKING 21 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] TRIP HAZARD 22 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] TREE NEEDS TRIMING OFF ROOF 23 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] PATIO AND BALCONY 24 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] TRANSFORMER 25 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] LANDSCAPING 26 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] STRIPING AND PARKING LOT 27 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] EXTERIOR LIGHT AND DUMPSTER 28 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] MAINTENANCE SHOP 29 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] ROOF 30 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] ROOF 31 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] PVC SEWER CLEAN OUT 32 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] POOL 33 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] POOL FENCE 34 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] WATER HEATER 35 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] AIR RETURN IN HALL CLOSET 36 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] GARBAGE DISPOSAL AND PLUMBING 37 LANDMARK WOODS 1400 CHEROKEE ROAD [PICTURE] PANEL BOX AND WIRES EX-99.3 36 PHYSICAL INSPECTION REPORT-ORCHARD PARK APARTMENTS 1 EXHIBIT 99.3 ORCHARD PARK APARTMENTS 49 ORCHARD PARK DRIVE GREENVILLE, SOUTH CAROLINA 29615 (864) 288-6903 PHYSICAL INSPECTION 2 ORCHARD PARK APARTMENTS Property was built in 1983 Date of Major Renovations: N/A Number of Units: 172 Number of Buildings: 21 apartment buildings with 2 independent free standing building (Office and maintenance shop) 2 3 ROOFS The type roofing on this property consists of 220#, 3-tab composition shingles on a gable roof structure. The gable roof structure appears to be at a 4/12 pitch. The overall condition of the roofing is poor, since most of the building roofs are original to property. Roofing is beginning to show evidence of curling and deterioration. Several buildings have roofs that are beginning to sag, which is a sign of delaminated and deteriorated decking. All roofs on property will need to be addressed to alleviate current condition. Approximately 50% of the roofs will require some decking replacement due to delamination and deterioration. Attached budget addresses replacement of original roofs throughout property. Budget also addresses replacement of decking as needed. GUTTERS and DOWNSPOUTS This property is not equipped with any type of gutter system. Gutters and downspouts will need to be installed throughout property to prevent washout and water damage to buildings. Budget addresses installation of gutters and downspouts on all buildings throughout property. HVAC The heating for the individual units on this property is obtained through an electric heat strip system. The cooling is a split system with 1 1/2 ton units for the one and two bedroom units. All condensing units are located on concrete pads next to the buildings. The interior air handler units are located in a utility closet in the individual units. Interior air handler units appear to be in fair condition. There are outside disconnects on all A/C units. Approximately 75% of the HVAC units are brand name "Carrier" with the remaining 25% consisting of miscellaneous brand names. Majority of the A/C units are original to property and will require attention in the next 3-5 years due to age and wear. Property management advised that 5 units were replaced this year due to age and general deterioration. Budget addresses general repairs as needed. PLUMBING Main exterior, cold water lines are PVC pipe as per maintenance supervisor. Main cold water lines are buried and not insulated. All of the buildings on property have exterior cold water gate shut-offs. The domestic water supply in each unit is obtained by copper pipe. The DWV system is all PVC plastic pipe. There is an average of two hose bibs per building for an approximate total of forty-six throughout the property. Each unit is equipped with one 1/3 H.P. garbage disposal. Majority of the garbage disposals are brand name "Whirlaway" and appear to be in average condition with no serious problems reported by management. All individual units throughout property contain washer/dryer connections. Overall condition of the plumbing system appeared to be adequate with no major deficiencies reported by property management at time of inspection. Budget addresses general plumbing repair and maintenance. 3 4 HOT WATER Hot water on this property is obtained through electric 40-gallon "low-boy" hot water heaters. The hot water heaters are located in the utility closet of each unit. Property manager stated that approximately fifteen units were replaced this year. Most of the hot water heaters are brand name "Rheem". The "Rheem" water heaters are original to property and should have an approximate life of 3-5 years depending upon maintenance and usage. There were no problems reported with hot water system at time of inspection and hot water heaters appeared to be functioning adequately. Budget allows for routine maintenance and repair as needed throughout property. ELECTRICAL All apartment units are individual metered for electricity. Exterior wiring from transformer to meters is aluminum. Exterior wiring from meter to interior breaker panels is aluminum. Interior wiring from breaker panel to plugs is copper for all individual units. Interior electrical supply is from a 125 AMP GE breaker panel. There are GFI outlets located in all individual units on property. No problems were reported with the interior electrical systems and equipment, and there were no major deficiencies in the exterior electrical systems noted on inspection. There are 7 transformers on this property, which appear to be in average condition, with no leaks visible. Budget addresses general repair and service as needed. 4 5 EXTERIOR SURFACES SIDING The buildings on this property are standard wood framing with (30%) brick veneer and (70%) wood type siding. The brick veneer siding is in average condition with no evidence on severe cracks on surface. The wood siding has rotten and delaminated wood throughout and will require extensive repairs. The fascia and soffits throughout property consist of painted wood. The fascia and soffits throughout property are showing signs of rot and delamination and will require major repairs at this time. The wood exterior on all chimneys is also showing evidence of wood deterioration and will need to be addressed at this time. Overall condition of exterior wood surfaces is poor and extensive wood replacement and painting will be needed to alleviate current condition. Attached budget addresses wood replacement and painting as needed throughout property. STAIRWELLS The exterior stairwells located on this property consist of wood stringers, treads and railing. All stairwells appear to be in only fair condition and will need to be addressed with wood replacement and paint. The exterior stairwells on property are showing signs of wood delamination and rot as well as paint deterioration. The stairwell landings consist of wood slate decking and wood railing. The stairwell landings on property also exhibit a general condition of deterioration. The wood in the stairwell landings is beginning to buckle, delaminate and rot in numerous areas. The overall condition of the paint on stairwells and landings is below average with evidence of chipping and flaking throughout property. Budget addresses wood replacement, repair and painting of stairwells and landings as needed throughout property. BALCONIES The second story balconies on this property consist of wood slate decking with wood railing enclosures. First floor patios are concrete slab on grade with wood fence enclosures on the buildings. Several balconies are beginning to exhibit areas of wood deterioration related to rot, buckling and delamination. The wood fencing around numerous patios is also in a general condition of deterioration due to age and decay. Repairs in the form of wood replacement and painting should address current condition. Budget addresses wood replacement, repair and painting as needed after repairs. FOUNDATIONS All of the foundations for the buildings on this property consist of a grid style monolithic concrete slab with integral grade beams. There was no obvious foundation problems observed and no major deficiencies reported on this property at the time of inspection. However, a structural engineering report would be advised at this time to be positive there is no hidden damage, as not all foundation failures are visible from the building exterior. 5 6 CONCRETE SIDEWALKS The concrete sidewalks on this property have a few elevation changes, which are trip hazards. Repairs, in the form of grinding the sidewalks and removing and replacing certain sections of concrete should address most problems related to the sidewalks. Budget addresses repairs to concrete sidewalks as needed. DRIVES AND PARKING LOTS The drives and parking lots on this property consist of asphalt. There are numerous areas throughout the property that will require repairs in the form of cutting out and replacing asphalt due to cracks and holes in surface. Drives and parking lots appear to be in below average condition and will require 2" asphalt overlay at this time to improve current condition. Drive and parking lot surface will need to be resealed and restriped after repairs and asphalt overlay. Attached budget allows for 2" asphalt overlay of drives and parking lots. WINDOWS The windows on this property are double paned, aluminum-framed windows. The windows are original to property and are beginning to show signs of wear around the seals. A few windows are fogging due to seal deterioration and will need to be addressed. Overall condition of the windows on this property is fair and will require some replacement due to age and deterioration. Attached budget addresses replacement and general repairs as needed. EXTERIOR LIGHTING The exterior lighting on this property is comprised of a few fixture types and styles. There are approximately ten exterior lights throughout the property that are maintained by the property management. All exterior light fixtures are incandescent and will require conversion to fluorescent to reduce overall maintenance and electricity cost. There are fifteen pole lights located throughout the property in miscellaneous areas. Security lighting appears to be insufficient and property management advised that there are several areas on property that will need to be addressed with security lighting. A lighting survey is recommended in the interest of safety and avoiding liability problems. Attached budget addresses augmentation of security lighting and general service as needed. LANDSCAPING AND IRRIGATION The landscaping on this property is in only fair condition. Property does have a limited sprinkler system located around the front entrance area. The sprinkler system is need of repairs due to broken pipes and sprinkler heads. Numerous areas around property are in need of attention due to dry and bare condition. There are several scrubs and landscaping areas that are dying and will need to be addressed. Numerous trees will have to be trimmed away from buildings to prevent problems in the future. Five trees on property are dying and will have to be removed due to safety issues. Extensive landscaping in the form of flower, scrub and sod installation will be needed to alleviate current condition of landscaping. Budget allows for tree trimming and removal. The budget also addresses flower, scrub and sod installation as needed. 6 7 DRAINAGE On the date of inspection there were no areas with standing water on the property. However, there are a few areas where grading away from buildings and sidewalks will have to be addressed. There also is a few areas in the rear of property where washout problems will need to be addressed. Majority of these problems should be solved with fill dirt, proper grading and landscaping without the need for the installation of additional drains or drain tile ("French drain"). Drainage away from the foundations appears to be fair. Budget addresses installation of fill dirt and proper grading along building foundations and sidewalks. TERMITES On the day of our inspection there was no evidence of termites or prior termite activity noted. Manager advised that there has been no recent termite activity. The property has an annual contract with a pest extermination service (Action Pest Control) which keeps any termite activity to a minimum. FENCING This is not a limited access community. There is no perimeter fencing on any side of the property. A public roadway, neighboring property and woods surround property on the perimeter. PARKING There are a total of 300 parking spaces on this property, of which none are covered parking. There is one space on property permanently reserved for the handicapped. There appears to be insufficient ADA access to the walkways and buildings from the parking lot. Striping in parking lots is beginning to fade and will need to be addressed after asphalt overlay of drives and parking lot is performed. Attached budget allows for augmentation of ADA access and resealing and restriping of the parking lot areas after asphalt overlay. LIFE SUPPORT SYSTEMS The one and two bedroom units are equipped with one battery-operated smoke detector. No exterior fire alarms were noted at any (each) building. There is currently one fire extinguisher located in all individual units throughout the property. Attached budget allows for general service and repair as needed. There are two fire hydrants located on the property and one fire hydrant on the public roadway by the property, which could be used for an emergency. 7 8 AMENITIES SWIMMING POOL There is one swimming pool on this property located by the office. The decking for the pool consists of concrete with an epoxy aggregate no-skid surface and appears to be in average condition at this time. The pool's coping and "tile-work" appears to be in only fair condition and will require repairs due to cracking, chipping and deteriorated condition. The plaster lining of the pool is showing evidence of wear and deterioration and will require attention at this time. The pool lining has chips and cracks and will need to be resurfaced. Pool pumps and filter equipment appeared to be functioning normally at time of inspection and should require only routine maintenance and service. The pool fence consists of wood and is in need of repairs due to deteriorated condition of wood slates. Attached budget addresses resurfacing the pool lining and repairing coping and "tile-work". Budget also includes repairs to wood fence. HOT TUB There is one gas-fired hot tub located on this property by the pool. The hot tub has tile lining that appears to be in average condition. Property management advised that the heat exchange unit on pool is causing problems at this time and will need to be replaced. Attached budget addresses repair of hot tub. TENNIS COURT There are two tennis courts on this property located by the pool. The tennis court appears to be in only average condition with no obvious evidence of cracking and chipping on surface. The tennis court striping is beginning to fade and will require attention at this time. Attached budget addresses restriping of tennis court surface. RACQUET BALL COURT There is no racquet ball court on this property. WEIGHT ROOM There is no weight room on this property. PLAYGROUND There are no playgrounds located on this property. 8 9 SAND VOLLEYBALL There is no sand volleyball court located on this property. LAUNDRY ROOM There is one laundry room on this property located by the office. The laundry room appears to be in average condition and has coin-operated equipment owned and operated by a vendor (Mackie). The laundry room has eight washers and eight gas fired dryers. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statements on the structural worthiness or integrity of the building(s); rather the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached pictures are representations of the property and should be independently evaluated by the recipient. 9 10 ORCHARD PARK 49 ORCHARD PARK DRIVE EXTERIOR BUDGET: ROOFING Replace roofs & decking $167,500.00 GUTTERS & DOWNSPOUTS Add on all Buildings $119,600.00 HVAC General Repairs $ 1,125.00 PLUMBING General repairs $ 1,220.00 HOT WATER General Repairs $ 1,250.00 ELECTRICAL General repairs $ 1,650.00 SIDING/TRIM/FACIA/SOFFITS Major repairs $150,000.00 EXTERIOR PAINT Paint entire exterior $ 68,800.00 STAIRWELLS Replace treads & repairs & paint $ 43,000.00 BALCONIES Complete Paint & repair $ 23,250.00 FOUNDATIONS Good $ 0.00 SIDEWALKS Replacement and repair $ 6,890.00 DRIVES & PARKING LOT 2" overlay & cut outs $ 80,000.00 WINDOWS Replace fogged units $ 4,500.00 EXTERIOR LIGHTING Add Security lights $ 2,500.00 LANDSCAPE & IRRIGATION Replace scrubs, trees and sod $150,000.00 DRAINAGE General Fill & grade $ 2,100.00 TERMITES No recent activity - annual contract $ 0.00 PARKING Restripe after repairs $ 15,000.00 LIFE SUPPORT SYSTEMS Good $ 0.00 POOL Repair deck, fence, & liner $ 18,300.00 HOT TUB Replace Heat Exchanger $ 1,800.00 FENCE N/A $ 0.00 LAUNDRY ROOM Good $ 0.00 TENNIS COURT Seal & Stripe $ 1,685.00 - -------------------------------------------------------------------------------- Total Budget: $860,170.00 ===========
11 ORCHARD PARK 49 Orchard Park Drive INVENTORY MANAGER'S OFFICE 1) 1 Large Wooden desk 2) 1 Credenza 3) 1 Black leather executive chair 4) 1 Table top desk lamp 5) 2 Pictures 6) 1 Master key box 7) 1 Polaroid 600 camera 8) 2 Upholstered Parson's chairs 9) 1 Lucent Telephone COMPUTER ROOM 10) 1 Large Wooden "Roll-top" Computer desk 11) 2 Wooden 2-drawer filing cabinets 12) 1 Ficus tree 13) 2 Pictures 14) 1 Brother ML 500 memory typewriter 15) 1 Toshiba TF 421 fax machine 16) 1 Digiview monitor 17) 1 Hewlett Packard 6L laser jet printer 18) 1 Mitac disk drive/processor 19) 2 Mli 691H speakers 20) 1 Practical Peripherals Modem 21) 1 Artificial ivy floral arrangement 22) 1 GE 2-line cordless telephone ASSISTANT'S OFFICE 23) 1 Wooden Secretarial desk 24) 1 Black leather executive chair 25) 1 Large wooden book case 26) 1 Upholstered bench 27) 3 Pictures 28) 1 Mirror 29) 1 Ficus tree 30) 1 Artificial ivy floral arrangement 31) 1 Lucent Telephone CLUBHOUSE 32) 4 Ficus Trees 33) 4 Artificial floral arrangements 34) 2 Large clay planters (at entrance) 12 MAINTENANCE SHOP 35) 1 Fire Cabinet 36) 1 Thermoflo HVAC recovery system 37) 1 HVAC vacuum pump 38) 1 Air tank 39) 1 Key machine 40) 1 Black'n Decker skill saw 41) 1 Makita drill 42) 1 Small torch 43) 1 Shop vac 44) 1 6 ft wood ladder 45) 2 Shovels 46) 2 Extension cords 47) 2 Small space heaters 48) 2 Rakes 49) 1 T square 50) 1 Metal desk 51) 1 Desk chair POOL PUMP/SPA ROOM 52) 2 Pool pumps 53) 2 Sand filters 54) 2 Chlorine feeders 55) 1 Vacuum hose 56) 2 Vacuum wheel bases 57) 1 Brush 58) 1 Net 59) 1 Gas spa heater (inoperable) 60) 2 Poles 61) 1 Shepard's hook pole POOL AREA 62) 2 Umbrella's 63) 3 Round tables 64) 8 Chairs 65) 19 Chaise lounges 66) 1 Volleyball net 67) 1 Life ring 68) 1 Trash can 13 MODELL 69) 3 Picture Frames 70) 1 Large "floor-standing" plant 71) 10 Misc master vanity accessories 72) 4 Hand towels 73) 1 Bath mat 74) 4 Placemats 75) 4 Napkins/rings 76) 2 Pitchers 77) 1 Pasta strainer 78) 1 Porcelain box 79) 1 Cutting board 80) 3 Bottles wine/champagne 81) 1 Wine holder 82) 1 Cart w/tea service 83) 3 Artificial floral arrangements 84) 1 Brass planters 85) 13 Decorative Books 86) 1 Pair brass bookends 87) 1 Glass apple 88) 1 Copper planter 89) 1 Large plant w/planter 90) 1 Decorative vase 91) 7 Hand towels 92) 1 Small mirror 93) 1 Sheet set 94) 3 Bath accessories 95) 1 Brass candlestick 14 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] SIGN AT ENTRANCE 15 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] CONSTRUCTION TYPE 16 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] ROOF 17 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] NO GUTTER 18 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] A/C UNITS AND SHUTOFFS 19 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] PLUMBING AND DISPOSAL 20 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] WATER HEATER AND A/C RETURN 21 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] PANEL BOX AND WIRES 22 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] TYPES OF SIDING 23 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] FACIA WOOD AND ROOF 24 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] STAIRWELL 25 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] BALCONIES 26 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] BALCONY 27 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] TRANSFORMER AND PARKING LOT 28 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] SECURITY LIGHT 29 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] SECURITY LIGHT 30 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] LANDSCAPING 31 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] PARKING LOT 32 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] STRIPING 33 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] FIRE HYDRANT 34 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] POOL AREA 35 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] POOL FENCE 36 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] TENNIS COURT 37 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] SHOP AREA 38 ORCHARD PARK 49 ORCHARD PARK DRIVE [PICTURE] LAUNDRY ROOM 39 SITE PLAN ORCHARD PARK [DIAGRAM] EX-99.4 37 PHYSICAL INSPECTION REPORT-PARK TOWNE ASSOCIATES 1 EXHIBIT 99.4 PARK TOWNE PLACE APARTMENTS 2200 BENJAMIN FRANKLIN PARKWAY PHILADELPHIA, PENNSYLVANIA 60559 (215) 568-6926 FAX (215) 496-0694 PHYSICAL INSPECTION 2 PARK TOWNE PLACE APARTMENTS PROPERTY WAS BUILT: 1958-59 DATE OF MAJOR RENOVATIONS: NUMBER OF UNITS: 980 NUMBER OF BUILDINGS: 4 APARTMENT BUILDINGS 3 ROOFS The roofs on all four towers are flat. There is one roof section on each tower. All of the roofs are EPDM with ballast over concrete decking. Maintenance reports that in June of 1997 all four buildings were patched and that the contractor estimated that these repairs would last four years. Currently the roofs leak approximately one time per year per building. The Maintenance Supervisor believes that the current roof is over 20 years old, our inspection corroborates this opinion. Management has bids on file for the entire replacement of all four roofs at a cost $800K, which we are including in the attached I.C.E. budget. The attached I.C.E. budget provides for the replacement of all roofs. GUTTERS AND DOWNSPOUTS This property is equipped with rooftop surface drains that run through the building to storm drains below. Maintenance reports that all drains are working properly at this time. There are no repairs required at this time. HVAC The property has one 450 ton cooling tower on each building. Of these four units, two are operational and have been re-plumbed to cool two buildings each. The remaining cooling towers are being parted out to keep the two newer units operating. Although maintenance reports that this system is currently working, it is not correct and these units should be replaced as they have exceeded their life expectancy. All of the inside chiller systems are covered under a service agreement with Carrier at a cost of $4K per month. For 10 more years Carrier will repair or replace any of the interior chiller parts and freon. The individual apartments have twin pipe style radiators, which are all original and require service at the least or preferably replacement at this time. The heating on the property is provided by two gas fired boilers, which circulate hot water through the individual radiators. The circulating pumps for this system are original, 39 years old and in need of replacement. The boilers require servicing. Maintenance reports that the expansion valves are failing with increased frequency and that they are currently scheduled to replace 24 of the valves in this calendar year... (there are 3000 on the property)... we are providing for their replacement in the attached I.C.E. budget. Overall the HVAC systems on this property have exceeded their life expectancy. They are currently 39 years old. We have provided a budget that will allow for the total replacement of the above mentioned systems and the rebuilding of the two newer cooling towers. As you can see this total cost comes to a little over $2000 per unit. Before the existing system is replaced with an updated version of the same system we would recommend evaluating a transition to individual thru the wall systems similar to the hotel style units found in many high-rises in the area. The costs for this conversion should be the same or lower and the benefit would be in no longer having to shut down an entire building for repairs. It should be noted that the attached I.C.E. budget does not replace any of the HVAC water distribution piping which is now 39 years old and will further deteriorate as time goes by. The attached I.C.E budget provides cooling tower replacement, cooling tower rebuilding, recirculating pump replacement, servicing of the boilers, replacement of the individual blower units in each unit. 4 PLUMBING Main, exterior, cold water lines are cast iron. Main hot and cold water lines are buried and not insulated. There are individual building cut offs and all of those inspected were gate valves. There are not any cut offs to the vertical plumbing supply stacks but there are individual water cut offs in each unit to control the toilet, sinks, and tub. The domestic water supply in each unit is obtained by copper pipe. The DWV system is Cast Iron pipe. There is a 4" stack in the kitchens and a 6" stack for the bathrooms. Maintenance reports frequent problems with the kitchens since the installation of the disposals. Regular service of all drain lines should be included in any future maintenance schedule. There is one hose bib at each building and all of those observed were frostproof. Each apartment is equipped with a 1/3 hp Whirlaway garbage disposal. There are less than 12 washers & dryers on the property. Management reports that the domestic water recirculating pump is scheduled for replacement in 1999, we are including this cost at this time. The attached I.C.E. budget provides for the service of all drain lines, replacement of the recirculating pump, and minor repairs to all plumbing systems at this time. HOT WATER Hot water on this property is obtained through tow gas fired Cleaver Brooks boilers which are 23 years old. Both boilers were re-tubed in 1995. The property has two 20K gallon underground oil storage tanks. These boilers provide the steam for both domestic hot water and steam for the radiators. The cost of replacing failing expansion valves has been covered in the HVAC section above, as has the servicing of both boilers. There are water softeners for the boiler feed. The attached I.C.E. budget costs are covered in the HVAC section of this report. ELECTRICAL All electricity on this property is provided by and paid for by the property. The electricity enters the building at 13,200 volts. There are two feeds that come from two separate power grids. The electrical wiring between the transformer and the meter base is copper. The electrical wiring between the meter base and the interior panel is copper. Interior wiring in apartments is copper for 110 volt and 220 volt circuits. We observed electrical equipment manufactured by Precision Transformer at the meter and Pushmatic 100 Amp panels in the individual units. There are electric disconnects at the interior panels of each step down transformer. Maintenance reports that there are Ground Fault outlets in 50% of all kitchens and bathrooms at this time. The current program is to install them upon turnover of the units. We are completing this program at this time. Interrupt circuits anywhere on the property, we are providing for their addition at this time. Maintenance reports that the East elevator transformer needs replacement at this time. Previously, there was a program to service all transformers on an annual basis, which we are resuming with this budget. There are 4 transformers on this property, which are mounted on concrete pads and appear to be in good condition, with no leaks visible. The attached I.C.E budget provides for the GFI installation and minor repairs only at this time. 5 SIDING This property is constructed of standard commercial grade construction. The exterior skin is brick veneer over concrete block. Management reports that the most severe brick damage has been repaired this year. Estimates are on file for a complete exterior brick cleaning, tuckpointing, acid washing, and polymer seal. This combined with the window replacement addressed below should solve the chronic water infiltration problems that have plagued this property. No one on the property could say when the property was last painted. There are very few painted exterior surfaces. The attached I.C.E. budget provides for the cleaning, tuckpointing, acid washing, and polymer sealing of the brick veneer at this time. STAIRWELLS There are no exposed exterior stairs on this property. The interior fire stairwells are C-channel steel stringers with poured in pan concrete treads. Overall, the stairwells are in good condition. Management reports that stairwell lighting was just upgraded in the summer of '98. We are providing for the painting of all stairwells at this time. The attached I.C.E budget provides for painting at this time. BALCONIES There are 128 balconies on this property. They are poured in place cantilevered structural concrete and are in fair to poor condition. Weather, age, and water penetration have caused various degrees of deterioration of the balconies. Maintenance reports that previous repairs have cost as little as $400 and as high as $2100 for a complete tear off and replacement. Due to liability concerns we recommend having a licensed engineer review all balconies to provide an impartial scope of work to insure proper repair. Balcony railings are aluminum and in overall good condition. There were several instances reported where rails have come loose from the brick veneer and should be reattached at this time. There are a few first floor units with concrete patios. These patios have cracked, shifted, and pose a trip hazard and are being included in the attached I.C.E. budget. The attached I.C.E. budget includes repairing or replacing balconies, resetting balcony railings, and replacing first floor patios at this time. FOUNDATIONS All of the foundations for the buildings on this property are basement style consisting of poured in place concrete perimeter walls atop a grid style monolithic concrete slab with integral grade beams. At the time of our inspection the foundations appeared to be sound with no visible or blatant evidence of foundation movement. The sub-floors on all upper floors are concrete and no problems were reported at the time of inspection. The attached I.C.E. budget does not require any allowance for Foundations at this time. 6 CONCRETE SIDEWALKS The sidewalks on this property are in poor condition. Management reports that $20K was spent in 1998 and that corrected 20% of the areas that need correction. There were several areas of sidewalks where the sections have shifted slightly and can be ground down. Damaged areas of the sidewalks, which are beyond being ground down, should be removed and replaced to address these problems. Management informs us that there is a current bid on file for the repair and replacement of the above mentioned sidewalks and we are using their bid at this time. The attached I.C.E. budget allows for grind down conditions, replacement, and handrails at this time. DRIVES AND PARKING LOTS The drives and parking lots on this property are asphalt and in fair condition. There is extensive damage found to both asphalt and curbs and gutters damaged by snowplows. The property has 195 surface parking spaces. The property also has an underground garage that contains 465 parking spaces. There is a playground area that Management reports could be removed for lack of use and converted to much needed additional parking. In May '98 ADF Engineering Co. Inc. was hired to review many conditions of concern in the underground garage. There has been extensive water infiltration over the years from the courtyard above and it has caused failure of the concrete floors. Management reports that $120K was spent in 1998 and that only corrected 10 - 15% of the affected areas. We are providing for the entire correction of these problems at this time. It will be necessary to seal and stripe these lots after the asphalt repairs this year to insure the integrity of the repairs. This cost is covered under PARKING below. Drainage appears to be good off of the lots with no visible signs of standing water. The attached I.C.E. budget provides for asphalt repairs, curbs, gutters, and underground parking garage repairs at this time. WINDOWS The windows on this property are single glazed, horizontal sliding, aluminum mill finished windows. The windows are in poor condition. There were noted leaks caused by faulty frames and seals between frames and brick veneer. The single glazed windows frost over in the winter and cause condensation problems on the insides damaging the plaster walls beneath. Management has bids on file for complete replacement with thermal glazed, thermal break framed windows and patio doors. Since the property provides the utilities this capital improvement will have benefits on all levels. The attached I.C.E. budget provides for the replacement of windows and patio doors at this time. 7 EXTERIOR LIGHTING The exterior lighting on this property is comprised of several fixture types and styles. The apartment entrances are lit by fluorescent drum lights in the hallway ceiling and appears to require additional lighting at this time. The back patios do not have light fixtures. The stairwell lighting has been converted from incandescent to fluorescent fixtures for savings on the cost of both electricity and maintenance. All buildings have HPS wallpacks throughout the property. The interior grounds are lit by HPS floodlights and these do not appear adequate. There are several areas between and behind buildings that the lighting appears to be insufficient. Surface parking lots are lit by HPS streetlights and Management reports that these are adequate. Underground parking lots are lit by HPS floodlights and we are supplementing these at this time. A lighting survey is recommended in the interest of safety and avoiding liability problems. The attached I.C.E. budget allows for the additional lighting in common area hallways, behind and between buildings and additional lighting in the underground parking areas. LANDSCAPING and IRRIGATION The landscaping on this property is in good condition, and well planned, overall. The property has a sprinkler system that covers 50% of the necessary areas. Management has bids on file to complete the necessary sprinkler systems at this time. The trees on the property are overgrown and require pruning. Following the installation of the sprinkler systems an overall upgrading of the landscaping will improve the drive-up appeal of the property. The attached I.C.E. budget provides for sprinkler installation, tree work, landscape upgrades, and improved signage at this time. DRAINAGE On the date of our inspection there was no standing water on the property. However, there was evidence of continued water infiltration in the underground parking garage from the courtyard above. Pending an Engineer's report we believe it will be necessary to excavate this area and waterproof the garage to prevent further deterioration of the Parking Garage below. We are providing a budget amount at this time, which will need to be updated pending the Engineer's Report. The attached I.C.E. budget provides for drainage corrections to the courtyard / parking garage. TERMITES On the day of our inspection there was no evidence of termite activity noted. The property has a pest control contract with Pest Technicians in place at this time. 8 FENCING This community has limited access doors and underground parking. The surface parking is not fenced. There are wrought iron fences on two of the four sides of the property. Management reports that totally enclosing the complex would improve security and rental rates. They have bids on file and we are adding this cost to the attached I.C.E. budget at this time. The attached I.C.E. budget provides for the completion of the perimeter fencing and limited access gates at this time. PARKING There are a total of 660 parking spaces on this property. Eight of these spaces are permanently reserved for the handicapped. While the underground parking areas are secured access the surface spaces are not. Management has bids on file and these costs are addressed in the FENCE section of this report. Parking lots will need to be sealed and striped to preserve the integrity of the above mentioned repairs. The attached I.C.E. budget includes sealing and striping of the entire parking area at this time. LIFE SUPPORT SYSTEMS Every apartment is equipped with one hardwired smoke detector located in the service hall. The smoke detectors are not monitored. In all common area hallways there are hardwired smoke and heat detectors, which are monitored by Atlantic Security Co. Additionally, there are fire alarm pull stations located in the lobbies of each building. No exterior fire alarms were noted on the property. The first floors and basements of each building are covered with a sprinkler system, as is the underground parking garage. There are no individual fire extinguishers in any of the apartment units. There are additional extinguishers at the office, and maintenance shops. There are 10# ABC fire extinguishers located in all common area hallways of the buildings themselves. After review of the various building layouts and traffic patterns it is recommended that (976) 2# fire extinguishers be installed in the individual units. There are 3 fire hydrants adjacent to the property and two stand pipe fire connectors at each building. The attached I.C.E. budget provides for the installation of 2# fire extinguishers at this time. AMENITIES SWIMMING POOL There is a swimming pool on this property located to the East of the South building. This pool consists of a plaster surface over gunite base, tile, concrete precast coping, and a concrete pool deck. The pool was sandblasted and painted in 1997. The tile and coping are in need of repair at this time. The pool equipment should be serviced at the beginning of the '99 season. The attached I.C.E. budget provides for tile, coping, and equipment service. 9 HOT TUB There is no hot tub on this property. TENNIS COURT There is no tennis court on this property. LAUNDRY ROOM There are 78 laundry rooms on this property. There are a total of 96 washers and 86 gas fired dryers. The vendor is Calico. The equipment is in good condition. The rooms are in average condition and in need of paint and vinyl at this time. WEIGHT ROOM There is a weight room on this property which is in need of updating in both equipment and room remodeling. SAND VOLLEYBALL COURT There is no sand volleyball court on this property. ELEVATORS There are two passenger and one freight elevator in each building. The property is under contract with Montgomery Elevator Co. to upgrade all cars and controllers over the next six months. The total cost of this contract is $1.1 Million. To date less than $200K has been paid out. We are including $1 Million for remaining expenditures, which include various changes to the contract since its inception. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statement on the structural worthiness or integrity of the building(s), rather, the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached photographs or pictures are representations of the property and should be independently evaluated by the recipient. 10 PARK TOWNE PLACE APARTMENTS 2200 BENJAMIN FRANKLIN PARKWAY, PHILADELPHIA, PENNSYLVANIA 19130 EXTERIOR BUDGET: ROOFING Replace four towers completely. $ 800,000.00 GUTTERS & DOWNSPOUTS Minor repairs. $ 10,000.00 HVAC Service boilers, replace pumps, replace cooling towers, service cooling towers, individual units, expansion valves. $1,990,000.00 PLUMBING Service drain lines, replace recirculating pump, minor system repairs. $ 98,200.00 HOT WATER Service boilers, expansion valves. (See HVAC for costs) $ 0.00 ELECTRICAL GFI installation, minor repairs, elevator transformer, service transformers. $ 143,240.00 SIDING/TRIM/FACIA/SOFFITS Brick cleaning, pointing, acid wash, and polymer seal. $ 800,000.00 EXTERIOR PAINT Painted surfaces. $ 48,800.00 STAIRWELLS Paint stairwells. $ 13,600.00 BALCONIES Repair or replace balconies, repair railings, 1st floor patios $ 170,400.00 FOUNDATIONS None. $ 0.00 SIDEWALKS Grind down, replace, stair repairs. $ 100,000.00 DRIVES & PARKING LOT Parking garage corrections, asphalt repairs. $1,050,000.00 WINDOWS Window replacement. Patio door replacement. $2,640,000.00 EXTERIOR LIGHTING Common area hallways, upgrade grounds, upgrade parking areas. $ 49,450.00 LANDSCAPE & IRRIGATION Sprinkler installation, tree work, landscaping upgrades, signage upgrades. $ 85,000.00 DRAINAGE Courtyard / Garage drainage corrections. $ 50,000.00 TERMITES No recent activity - annual contract $ 0.00 PARKING Seal & stripe $ 15,444.00 LIFE SUPPORT SYSTEMS 2# fire extinguishers. $ 73,200.00 POOL Coping, tile, equipment service. $ 8,500.00 WEIGHT ROOM Remodel/Equipment $ 50,000.00 FENCE Limited access fencing and gates. $ 125,000.00 LAUNDRY ROOM Paint & Floors. $ 39,000.00 ELEVATORS Upgrade cars & controllers. $1,000,000.00 - -------------------------------------------------------------------------------------------------------- Total Budget: $9,359,834.00 =============
11 PARK TOWNE PLACE APARTMENTS 2200 BENJAMIN FRANKLIN PARKWAY PHILADELPHIA, PENNSYLVANIA 19130 INVENTORY 1) OFFICE 2) 1 ea Xerox machine (Lease-purchase) 3) 2 ea Fax machines 4) 1 ea Merlin telephone system w/ 15 phones 5) 1 ea Lobby furniture is on a lease purchase with AFR 6) 1 ea Office furniture is on a no-charge lease with AFR 7) 10 ea 4-drawer lateral metal file cabinets 8) 2 ea 2-drawer lateral metal file cabinets 9) 2 ea 2-drawer metal file cabinets 10) 1 ea Compaq Prolinea 4100 computer with HP laserjet 5 printer 11) 1 ea Compaq Prolinea 4-33S computer with HP laserjet 5 printer 12) 1 ea Opal systems computer with HP laserjet 4L printer 13) 1 ea Max-Tech computer with HP laserjet 5 printer 14) 2 ea Luggage racks 15) 2 ea Elevator cameras with VCR 16) 17) MAINTENANCE EQUIPMENT 18) 1 ea 8 pack battery charger 19) 1 ea Kent wet vac 20) 1 ea Kent Burnisher 21) 2 ea Kent carpet scrubber 22) 4 ea Kent vacuums 23) 1 ea Drain snake 24) 1 set Kent buffer 25) 1 ea Billy Goat vacuum 26) 6 ea Flat bed trucks 27) 1 ea Time clock 28) 1 ea Tenant sweeper 29) 2 ea Hand trucks 30) 1 ea Router 31) 2 ea Nailers 32) 1 ea Hammer drill 33) 1 ea Saw zall 34) 2 ea Snow blowers 35) 3 ea Salt spreaders 36) 1 ea Gas water pump 37) 1 ea Key cutting machine 38) 15 ea Motorola 2-way radios
Inventory Page 1 12 39) 40) FITNESS CENTER 41) 2 ea Air cycles 42) 2 ea Stair masters 43) 2 ea Treadmills 44) 2 ea Universal weight machines 45) 4 ea Exercise pads 46) 2 ea Exercycles
Inventory Page2 13 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 1) View of Skyline from property rooftop. [PICTURE] Photo No.: 2) View of Museum district from property rooftop. Photos Page 1 14 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 3) View of River from property rooftop. [PICTURE] Photo No.: 4) Rear elevation of North Tower. Photos Page 2 15 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 5) Elevation of West Tower. [PICTURE] Photo No.: 6) West elevation of South Tower. Photos Page 3 16 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 7) Rear loading dock for South Tower. [PICTURE] Photo No.: 8) Elevation of East Tower. Photos Page 4 17 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 9) Typical entrance. [PICTURE] Photo No.: 10) Controlled access doorways at all buildings. Photos Page 5 18 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 11) Security desk at all buildings. [PICTURE] Photo No.: 12) Leasing Office. Photos Page 6 19 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 13) Interior view of Leasing Office. [PICTURE] Photo No.: 14) View of Model. Photos Page 7 20 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 15) view of Model. [PICTURE] Photo No.: 16) View of Model. Photos Page 8 21 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 17) View of Model. [PICTURE] Photo No.: 18) Roof of East Tower. Photos Page 9 22 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 19) Roof of West Tower. [PICTURE] Photo No.: 20) View of Cooling Tower. Photos Page 10 23 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 21) View of Cooling Tower. [PICTURE] Photo No.: 22) View of Condensing Unit for South Tower Retail Spaces. Photos Page 11 24 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 23) Typical inside radiator style HVAC unit. [PICTURE] Photo No.: 24) Interior Pushmatic panel. Photos Page 12 25 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 25) GFI's were present in 50% of the units. [PICTURE] Photo No.: 26) Typical conditions found around windows Failing caulk. Photos Page 13 26 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 27) Typical balconies. [PICTURE] Photo No.: 28) Typical sidewalk damage found. Photos Page 14 27 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 29) Surface parking. [PICTURE] Photo No.: 30) Surface parking. Photos Page 15 28 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 31) View of corrected underground parking area. [PICTURE] Photo No.: 32) View of typical damage found in underground parking area. Photos Page 16 29 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 33) View of underground parking area. Note areas needing improved lighting. [PICTURE] Photo No.: 34) View of underground parking area. Note repaired concrete. Photos Page 17 30 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 35) View of surface parking lot above expansion joint in underground garage. [PICTURE] Photo No.: 36) Typical facade. Note brick in need of tuckpointing, acid wash, and seal. Photos Page 18 31 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 37) Typical interior damage found from leaking windows. [PICTURE] Photo No.: 38) Fire stairwell lighting. Photos Page 19 32 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 39) Typical hallway Note lighting, fire alarm, smoke detector, and pull station. [PICTURE] Photo No.: 40) Typical parking lot lighting HPS pole lights. Photos Page 20 33 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE} Photo No.: 41) Common areas have 10# ABC fire extinguishers in the hallways. [PICTURE] Photo No.: 42) Hardwired smoke detectors are found in each unit. Photos Page 21 34 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 43) View of Swimming Pool adjacent to South Tower. {PICTURE] Photo No.: 44) Pool equipment Photos Page 22 35 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 45) Typical Laundry Room. [PICTURE] Photo No.: 46) Weight room. Photos Page 23 36 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 47) Current Elevator equipment. Being replaced over the next 9 months. [PICTURE] Photo No.: 48) Current Elevator equipment. Being replaced over the next 9 months. Photos Page 24 37 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 49) Antenna equipment. [PICTURE] Photo No.: 50) First Union Bank leases space. Photos Page 25 38 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 51) Video rental booth in the lobby. [PICTURE] Photo No.: 52) View of Restaurant in South Tower. Photos Page 26 39 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 53) View of Restaurant in South Tower [PICTURE] Photo No.: 54) View of Commisary in South Tower Photos Page 27 40 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 55) View of Banquet facilities in South Tower. [PICTURE] Photo No.: 56) View of Banquet facilities in South Tower. Photos Page 28 41 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 57) Dry Cleaners lease space. [PICTURE] Photo No.: 58) Food Market leases space. Photos Page 29 42 PARK TOWNE PLACE APARTMENTS 2200 Benjamin Franklin Parkway Philadelphia, Pennsylvania 19130 [PICTURE] Photo No.: 59) Car Wash service in underground garage. [PICTURE] Photo No.: 60) Typical mail center. Photos Page 30 EX-99.5 38 PHYSICAL INSPECTION REPORT-SALE ARMS OF AUGUSTA LP 1 EXHIBIT 99.5 SALEM ARMS APARTMENTS 2243 ROSIER ROAD AUGUSTA, GEORGIA 30906 (706) 798-3243 PHYSICAL INSPECTION 2 SALEM ARMS APARTMENTS Property was built in 1971 Date of Major Renovations: 1997 (wood and paint) Number of Units: 136 Number of Buildings: 25 apartment buildings with 2 independent free standing building (Office and pump house) 2 3 ROOFS The type roofing on this property consists of 220#, 3-tab composition shingles on a gable roof structure. The gable roof structure appears to be at a 6/12 pitch. The overall condition of the roofing is fair and several roofs will need to be addressed due to current condition. Property management advised that two buildings have serious problems with leaks due to roof condition. Roofing on several buildings is beginning to show evidence of curling and shingle deterioration. Buildings 5 and 7 have roofs that are beginning to sag, which is a sign of delaminated and deteriorated decking. Majority of the roofs on property will require some repair at this time. The roofs on property should have an approximate life expectancy of eight to ten years depending upon quality of repairs and weather conditions. Attached budget allows for replacement of damaged decking and problem roofs. Budget also addresses repairs as needed on the remaining roofs throughout property. GUTTERS AND DOWNSPOUTS This property is not equipped with any type of a gutter system. A complete gutter system is only located on building 22. The gutter system on building 22 is in average condition and will require some limited repairs. Gutters and downspouts will need to be installed throughout property to prevent washout and water damage to buildings. Budget addresses installation of commercial grade gutters and downspouts on buildings throughout property. Budget also allows for installation of splash blocks on all downspouts as needed. HVAC The heating for the individual units on this property is obtained through an electric heat strip system. The cooling is a split system with 2-ton units for the two and three bedroom units. All the upstairs individual units have a 2-1/2 ton unit for cooling. All condensing units are located on concrete pads next to the buildings. The interior air handler units are located in a utility closet in the individual units. Interior air handler units appear to be in average condition. There are outside disconnects on approximately 25% of the A/C units. Majority of the HVAC units are brand name "Lennox" with the remaining amount of units consisting of miscellaneous brands. The bulk of the A/C units are original to property and will require attention in the next 3-5 years due to age and wear. Property management advised that eight units were replaced last year due to age and general deterioration. Budget addresses installation of A/C outside disconnects and general repairs as needed. PLUMBING Main exterior, cold water lines are copper pipe as per maintenance supervisor. Main cold water lines are buried and not insulated. Maintenance supervisor stated that all the buildings on property have one exterior cold water gate shut-off per individual unit. The domestic water supply in each unit is obtained by copper pipe. The DWV system is all PVC plastic pipe. There is an average of three hose bibs per building for an approximate total of seventy-five throughout the property. Each unit is equipped with one 1/3 H.P. garbage disposal. Approximately 50% of the garbage disposals are brand name "ISE" and appear to be in average condition with no serious problems reported by management. The remaining garbage disposals are miscellaneous brand names. All individual units throughout property contain washer/dryer connections. Overall condition of the plumbing system appeared to be adequate with no major deficiencies reported by property management at time of inspection. Budget addresses general plumbing repair and maintenance. 3 4 HOT WATER Hot water on this property is obtained through electric 40-gallon upright hot water heaters in approximately 50% of the individual units. All of the upright water heaters have been installed in the last three to five years and should continue to function properly for the next ten to twelve years. The remaining 50% of the individual units are equipped with an electric 30-gallon "low boy" hot water heater. Maintenance supervisor stated that all "low boy" water heater units are original to property. The original water heaters are beginning to have problems and will need to be addressed in the next one to three years depending upon maintenance and usage. Property manager stated that seven units were replaced this year. There were no major problems reported with the hot water system at time of inspection and hot water heaters appeared to be functioning adequately. Budget allows for routine maintenance and repair as needed throughout property. ELECTRICAL All apartment units are individual metered for electricity. Exterior wiring from transformer to meters is copper as per maintenance supervisor. Exterior wiring from meter to interior breaker panels is aluminum. Interior wiring from breaker panel to plugs is aluminum for all individual units. Interior electrical supply is from a 125 AMP GE breaker panel. There are no GFI circuits located in any of the individual units on property. No problems were reported with the interior electrical systems and equipment, and there were no major deficiencies in the exterior electrical systems noted on inspection. There are twenty-four transformers on this property, which appear to be in average condition, with no leaks visible. Budget addresses installation of one GFI per individual unit and general repairs as needed. 4 5 EXTERIOR SURFACES SIDING The buildings on this property are standard wood framing with brick siding. Property management stated that building 7 had repairs performed to brick exterior a few years ago due to water entering individual units through foundation. Manager stated there has been no problems with building exterior surface since repairs. The brick siding throughout property is in average condition with no evidence of severe cracks or deterioration. The fascia and soffits throughout property consist of painted wood and appear to be in average condition with no evidence of rotten wood. Overall condition of building exterior surfaces is good and will require only general repairs at this time. Property management advised that problem wood and paint areas were addressed in 1997 renovation. Attached budget addresses general repairs and spot painting as needed throughout property. STAIRWELLS The exterior stairwells located on this property consist of metal stringers, treads and railing. The stairwells appear to be average condition. Stairwell on building 8 is unstable due to rust and poor mounting and will need to be addressed to prevent any liability problems in the near future. Stairwell on building 8 will need to be repaired, remounted and reset. The interior stairwells consist of wood stringers and treads with metal railing. The interior stairwells are covered with indoor/outdoor carpet and appear to be in good condition with no problems reported by property management. The exterior stairwell landings consist of lightweight concrete in metal pan with metal railing. The exterior stairwell landings on property also appear to be in average condition with the exception of building 8 stairwell landing, which is unstable and not properly mounted to building. The interior stairwell landings consist of lightweight concrete in metal pan with metal railing and appear to be in good condition. The overall condition of the stairwells and landings is good with the exception of building 8 stairwell and landing. Budget addresses extensive repair to building 8 stairwell and general repairs as needed to the remaining stairwells on property. BALCONIES There are no individual second story balconies located on this property. First floor patios are concrete slab on grade with wood fence enclosures on the buildings. Numerous patios throughout property have wood fences that are beginning to exhibit areas of wood deterioration related to rot, buckling and delamination. The patio fence enclosures throughout most of the property is either missing or in poor condition due to age and decay. Repairs in the form of wood fence replacement should address current condition. Budget addresses patio wood fence replacement and repair as needed throughout property. FOUNDATIONS All of the foundations for the buildings on this property consist of a grid style monolithic concrete slab with integral grade beams. There was no obvious foundation problems observed and no major deficiencies reported on this property at the time of inspection. However, a structural engineering report would be advised at this time to be positive there is no hidden damage, as not all foundation failures are visible from the building exterior. 5 6 CONCRETE SIDEWALKS The concrete sidewalks on this property have a few elevation changes, which are trip hazards. Repairs, in the form of grinding the sidewalks and removing and replacing certain sections of concrete should address most problems related to the sidewalks. Budget addresses repairs to concrete sidewalks as needed. DRIVES AND PARKING LOTS The drives and parking lots on this property consist of asphalt. Drives and parking lots appear to be in good condition at this time. Property management advised that drives and parking lots had 1 1/2 inch asphalt overlay in 1997. Attached budget does not address drives and parking lots, as they appear to be in good condition at this time. WINDOWS The windows on this property are single paned, aluminum-framed windows. The windows are original to property and are beginning to show signs of wear around the seals. A few widows are beginning to show seal deterioration and will need to be addressed. Overall condition of the windows on this property is fair and will require some replacement due to age and deterioration. Attached budget addresses replacement and general repairs as needed. EXTERIOR LIGHTING The exterior lighting on this property is comprised of a few fixture types and styles. There are approximately seventy-two exterior lights throughout the property which, are maintained by property management. Approximately 50% of the exterior light fixtures are incandescent and will require conversion to fluorescent to reduce overall maintenance and electricity cost. There are sixteen security pole lights located throughout the property in miscellaneous areas. The security pole lights are installed and maintained by Jefferson Electric for a monthly fee. Security lighting appears to be insufficient and property management advised that there are several areas on property that will need to be addressed with security lighting. A lighting survey is recommended in the interest of safety and avoiding liability problems. Attached budget addresses conversion of exterior incandescent light fixtures to fluorescent and augmentation of security lighting as needed. LANDSCAPING AND IRRIGATION The landscaping on this property is in average condition. Property does not have a sprinkler system located on property. Numerous areas around property are in need of attention due to dry and bare condition. There are several shrubs and landscaping areas that are in poor condition and will need to be addressed. A few trees will have to be trimmed away from buildings to prevent problems in the future. There is one tree by building 25 that will need to be removed due to location and root system. Landscaping in the form of flower, scrub and sod installation will be needed to improve aesthetic condition of landscaping. Brick retaining wall on property exhibits evidence of severe cracking and is beginning to lean. Brick retaining wall will need to be addressed at this time to prevent further deterioration. Budget allows for repairs to brick retaining wall, tree trimming and removal. The budget also addresses flower, scrub and sod installation as needed. 6 7 DRAINAGE On the date of inspection there were no areas with standing water on the property. However, there are a several areas where grading away from buildings and sidewalks will have to be addressed. There also are numerous areas on property where drainage problems will need to be addressed. Repairs in the form of fill dirt installation, proper grading and landscaping will help alleviate current condition. Additional drains or drain tile ("French drain") will need to be installed to help expedite drainage after heavy rains. Drainage away from the foundations appeared to be fair. Budget addresses installation of fill dirt and proper grading throughout property. Budget also allows for installation of drains throughout property as needed. TERMITES On the day of our inspection there was no evidence of termites or prior termite activity noted. Manager advised that there has been no recent termite activity. The property does not have an annual contract with a pest extermination service. FENCING This is not a limited access community. There is no perimeter fencing owned by property. Chain link fence in rear area of property is owned by neighboring property. Chain link fence in center area of property is in poor condition and will require repairs at this time. A public roadway, neighboring property and woods surround property on the perimeter. Attached budget allows for repairs to interior chain link fence. PARKING There are a total of 248 parking spaces on this property, of which none are covered parking. There are no spaces on property permanently reserved for the handicapped. There appears to be insufficient ADA access to the walkways and buildings from the parking lot. Striping in parking lots is in average condition and will not be addressed at this time. Attached budget allows for augmentation of ADA access to buildings and parking areas. LIFE SUPPORT SYSTEMS The two bedroom units are equipped with one battery-operated smoke detector. The three bedroom units are equipped with two battery-operated smoke detectors. No exterior fire alarms were noted at any (each) building. Property management stated that approximately 90% of the individual units have one fire extinguisher located in the utility closet or under kitchen sink. Attached budget allows for installation of one metal box 5lb. ABC fire extinguisher in the remaining 10% of the individual units and general service as needed. There are three fire hydrants located on the property and no fire hydrants on the public roadway by the property, which could be used for an emergency. 7 8 AMENITIES SWIMMING POOL There are two swimming pools on this property located by the office. The decking for both pools consists of concrete and appears to be in average condition at this time. The coping and "tile-work" for both pools appear to be in average condition and will not require attention at this time. Property management advised that coping and "tile-work" for the pools was addressed in 1997. The lining for both pools consists of "Gunite" and appears to be in fair condition. There appears to be some evidence of flaking on pool surface and will require some limited repairs at this time. Pool pumps and filter equipment appeared to be functioning poorly at time of inspection. Property management advised that pool pump and filter equipment is not functioning correctly and has been having problems. The pool fence consists of chain link and is in need of repairs due to bent and unstable condition. Attached budget addresses repairing pool lining and replacing pool equipment and fence. HOT TUB There is no hot tub located on this property. TENNIS/BASKETBALL COURT There are two courts on this property located by the pool. The courts appear to be in average condition with no obvious evidence of cracking and chipping on surface. The tennis/basketball court striping is beginning to fade and will require attention at this time. The tennis/basketball court equipment is in poor condition and will need to be addressed at this time. Attached budget addresses restriping of court surface and replacement of court equipment. RACQUET BALL COURT There is no racquet ball court on this property. WEIGHT ROOM There is no weight room on this property. PLAYGROUND There is one playground located on this property by building 19. The playground is sand based and has metal jungle gym equipment. A chain link fence on perimeter encloses playground. Chain link fence is in poor condition and will need to be repaired to prevent any future liability problems related to playground area. Attached budget addresses repairs to chain link fence and general repairs as needed. 8 9 SAND VOLLEYBALL There is no sand volleyball court located on this property. LAUNDRY ROOM There is no laundry room located on this property. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statements on the structural worthiness or integrity of the building(s); rather the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached pictures are representations of the property and should be independently evaluated by the recipient. 9 10 SALEM ARMS APARTMENTS 2243 Rosier Road EXTERIOR BUDGET: ROOFING Extensive roof repair $ 51,388.00 GUTTERS & DOWNSPOUTS Gutter system and splash block installation $ 70,026.00 HVAC Add disconnects and general repair $ 10,950.00 PLUMBING General repairs $ 1,895.00 HOT WATER General repairs $ 1,115.00 ELECTRICAL Add GFI'S and general repair $ 9,253.00 SIDING/TRIM/FACIA/SOFFIT General repairs $ 3,750.00 EXTERIOR PAINT Spot painting as needed after general repairs $ 2,550.00 STAIRWELLS Replace building 8 stairwell & general repair $ 5,950.00 BALCONIES Repair/replaced patio fence & general repair $ 11,880.00 FOUNDATIONS Good $ 0.00 SIDEWALKS Replacement and repair $ 2,825.00 DRIVES & PARKING LOT Good $ 0.00 WINDOWS General repairs $ 1,685.00 EXTERIOR LIGHTING Conversion and security augmentation $ 5,876.00 LANDSCAPE & IRRIGATION Tree trim/sod & shrub/retaining wall $ 68,950.00 DRAINAGE Installation of drain, fill dirt & grade $ 10,875.00 TERMITES Good $ 0.00 FENCES Repair and replace $ 2,800.00 PARKING Add ADA access $ 3,800.00 LIFE SUPPORT SYSTEMS Add fire extinguishers and general service $ 3,030.00 POOL Resurface lining, repair coping and tiles $ 9,800.00 HOT TUB N/A $ 0.00 TENNIS/BASKETBALL COURT Restripe and new equipment $ 6,800.00 PLAYGROUND Repair fence and general maintenance $ 2,380.00 LAUNDRY ROOM Good $ 0.00 ------------------------------------------------------------------------------------------- Total Budget: $ 287,578.00 ============
11 SALEM ARMS APARTMENTS 2243 ROSIER ROAD INVENTORY MAINTENANCE SHOP (CONTINUED) 13) 1 TUB DRAIN WRENCH 14) 1 VACUUM CLEANER 15) 1 DISPOSAL WRENCH 16) 1 FAUCET SOCKET 17) 2 ELEMENT SOCKETS 18) 1 GLASS CUTTER (NEW) 19) 1 GLASS CUTTER (USED) 20) 3 SHOVELS 21) 2 RAKES 22) 2 POST HOLE DIGGERS 23) 1 PICK AXE 24) 1 SHOP VACUUM 25) 1 LEAF BLOWER 26) 1 GRILL 27) 1 KEY MACHINE POOL PUMP ROOM 1) 1 LADDER 2) 1 METAL BRUSH 3) 1 VACUUM HOSE 4) 3 EXTENSION POLES (2 REGULAR & 1 TELESCOPIC) 5) 1 LEAF COLLECTOR 6) 1 VACUUM HEAD 7) 1 HOSE HANGER SET 8) 1 PRESSURE GAUGE POOL AREA 1) 2 PICNIC TABLES 2) 12 LOUNGE CHAIRS 3) 1 UMBRELLA 4) 1 DONUT LIFE PRESERVER 5) 1 LIFE HOOK 12 SALEM ARMS APARTMENTS 2243 ROSIER ROAD INVENTORY OFFICE 1) 1 DESK 2) 1 DESK CHAIR 3) 2 GUEST CHAIRS 4) 1 BOOKCASE 5) 1 COMPUTER DESK 6) 1 TELEPHONE 7) 1 FAX MACHINE 8) 1 FIRE SAFE 9) 1 MICROWAVE 10) 2 WALL PICTURES 11) 1 HP DESKJET 500 PRINTER 12) 1 DIGIVIEW MONITOR 13) 1 KEYBOARD 14) 1 MITAC HARD DRIVE LEASING AREA 1) 1 DESK 2) 1 DESK CHAIR 3) 1 TWO DRAWER LATERAL FILE 4) 2 GUEST CHAIRS 5) 1 PRINT 6) 1 TYPEWRITER 7) 1 CALCULATOR 8) 1 TELEPHONE 9) 1 FILE CABINET 10) 1 GUEST TABLE 11) 4 GUEST CHAIRS MAINTENANCE SHOP 1) 3 LADDERS 2) 2 DRAIN AUGERS 3) 1 APPLIANCE DOLLY 4) 1 UTILITY DOLLY 5) 1 RECOVERY UNIT 6) 1 25', 1/4" DRAIN AUGER 7) 1 TURBO TORCH HEAD 8) 2 RECOVERY TANKS 9) 1 BATTERY CHARGER 10) 1 GOLF CART 11) 1 REFRIGERATOR 12) 1 COMPRESSOR 13 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] SIGN IN FRONT 14 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] BUILDING STYLE 15 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] ROOF 16 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] NO GUTTERS ON BUILDING 17 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] EXTERIOR A/C UNITS 18 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] INTERIOR AIR HANDLER 19 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] INTERIOR PLUMBING AND GARBAGE DISPOSAL 20 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] WATER HEATER 21 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] ELECTRIC PANEL BOX 22 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] PREVIOUS REPAIRS TO BRICK SIDING 23 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] INTERIOR STAIRWELLS 24 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] EXTERIOR STAIRWELL AND LANDING 25 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] EXTERIOR STAIRWELL LANDING NOTE: METAL RAILING DISCONNECTED FROM BUILDING 26 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] WOOD FENCE DAMAGE 27 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] SIDEWALK NOTE: TRIP HAZARD 28 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] DRAINAGE NOTE: MISSING BRICKS AROUND DRAIN 29 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] EXTERIOR LIGHTING 30 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] SECURITY LIGHT 31 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] LANDSCAPING NOTE: TREE ON ROOF 32 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] LANDSCAPING NOTE: BRICK TRIM DAMAGED AND MISSING 33 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] LANDSCAPING NOTE: DRY AREA 34 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] RETAINING WALL 35 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] POOL AREA 36 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] POOL PUMP AND FILTERS 37 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] TENNIS COURT 38 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] PLAYGROUND 39 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] CHAIN LINK FENCE 40 SALEM ARMS APARTMENTS 2243 ROSIER ROAD, AUGUSTA, GA. 30906 [PICTURE] MAINTENANCE SHOP 41 [SITE PLAN] EX-99.6 39 PHYSCIAL INSPECTION REPORT-SNOWDEN VILLAGE ASSOC. 1 EXHIBIT 99.6 SNOWDEN VILLAGE I APARTMENTS 2352 Cowan Blvd. Fredericksburg, VA. 22401 (540) 371-6655 Fax (540) 373-8092 PHYSICAL INSPECTION 2 SNOWDEN VILLAGE I APARTMENTS Property was built in 1970 Date of Major Renovations: 1996 Parking Lot Overlay 1993 Exterior Painting 1993 Complete Roof Number of Units: 132 Number of Buildings: 22 apartment buildings 3 ROOFS The roofs on this phase are 200#, 20 year, 3-Tab, composition shingles. All roofs were overlaid in 1993. There are currently 2 layers of shingles on all roofs. The roofs appear to have a 6/12 pitch. Decking is 7/16" and is reported in good condition. There are no leaks reported at this time. Maintenance reported problems with the ridge vents that blow off in high winds. It is necessary to re-secure these with longer nails. Additionally, Photo No. 4 shows facia in need of replacement at this time. The attached I.C.E. budget provides for the repairs to the ridge vents and facia at this time. GUTTERS and DOWNSPOUTS This property has gutters on 100% of the facia. Gutters lead to downspouts, which in turn, lead to splashblocks and underground drains. These gutters are original to the property and in need of replacement at this time. Most of the observed splashblocks were incorrectly installed or were missing altogether. Maintenance reports several problem areas where gutters are no longer secured to the facia. The underlying framing has rotted out and is in need of replacement at this time. The attached I.C.E. budget provides for corrections to the splashblocks, facia, gutters, and downspouts at this time. HVAC The individual apartment units are cooled by a split through the wall system. The condenser units are located in a service closet. The original condensers were Magic Chef, which have been replaced with American Air units. Maintenance reports that 84 of the 134 units are still original, 28 years old. The most common repairs have been fan motors, and compressor mounts breaking. Photos No. 6 & 7 shows an area of concern regarding all of the condensers. The wooden 1 x 4 trim strip surrounding the intake vent has failed, in most cases, and allows water to infiltrate the units in a rain. None of the units have electric disconnects. In order to work on the units it is necessary to shut off the circuit breaker at the interior panel. The heating is provided by 50 and 75,000 BTU gas fired furnaces. The original brand was AirEase which has been replaced over time with Goodman and Century. Maintenance reports that 115 of the 134 units are still original, 28 years old. Both one and two bedroom units use the same one and one half ton sized units and maintenance reports no problems. We are providing for the upgrade to two tons for the two bedroom units and the replacement of the remaining one and one half ton original units at this time. The attached I.C.E budget provides for the installation of the electric disconnects and the replacement of the remaining original HVAC units at this time. 4 PLUMBING Main, exterior, cold water lines are copper pipe. Main hot and cold water lines are buried and not insulated. The cold water line enters the building through the laundry rooms in each building. There are individual building cut offs and they are all gate valves and are reportedly in good working order at this time. There are not any cut offs to the vertical plumbing supply stacks and as such when work is performed on the system outside of the apartment units it is necessary to shut down the water to all the units in a building. Maintenance reports that we could install cut offs on the vertical stacks and that this would be of great benefit. The domestic water supply in each unit is obtained by copper pipe. The DWV system is PVC plastic pipe. There are hose bibs at each building and none are functional. There are garbage disposals on the property. The original brand was GE and the replacement brand is Whirlaway. There are no individual washers or dryers on the property. The sewer system requires a regular clean out at this time. The attached I.C.E. budget includes sewer clean out and installation of ball valves to the vertical plumbing stacks. HOT WATER Hot water on this property is obtained through one gas fired boiler in each building. The observed units were A.O. Smith 80 gallon heaters on Bell & Gossett or Grundfos 1/12 HP recirculating loops. The property does not use a water softener system on the hot water line. Of the 8 water heaters on the property, the newest were one year old while the oldest were 13 years old. The two heaters from 1985 are in poor condition and in need of replacement at this time. The remaining hot water systems are in good condition and require only minor service at this time. The attached I.C.E. budget provides for the servicing of all hot water heaters and the replacement of two heaters at this time. ELECTRICAL The electricity on this phase of the property is provided by a master commercial meter, which is sub-metered to the individual units. All of the observed electrical equipment was manufactured by Federal Pacific. There are 75 Amp disconnects which shut off 3 units at a time. The interior electrical panels are 100 Amp. The electrical wiring between the transformer and the meter base is aluminum. The electrical wiring between the meter base and the interior panel is aluminum. Interior wiring in apartments is copper coated aluminum for the 110 volt and 220 volt circuits. There were no Ground Fault Interrupt circuits in any bathrooms or kitchens. There are 4 transformers on this phase of the property, which are mounted on concrete pads and appear to be in good condition, with no leaks visible. The attached I.C.E budget provides for minor repairs to the electrical systems and the addition of GFI outlets at this time. 5 EXTERIOR SURFACES SIDING This property is constructed of concrete block with a full stucco veneer. Approximately 80% of the exterior surfaces are stucco and 20% painted T-111 siding with painted wood trim and painted plywood soffits. The stucco is in good condition with only minor repairs required at this time. The T-111 siding is in need of attention at this time with many areas requiring scraping, priming, and painting. The facia as mentioned in the GUTTER section of this report is in need of repair and replacement in order to provide a solid base to secure the gutters. The property was last painted in 1993. The attached I.C.E. budget provides for stucco repairs, T-111 siding repairs, and facia repair or replacement at this time. STAIRWELLS There are 22 covered exterior stairs on this property. The stairwells are C-channel steel stringers with poured in pan concrete treads. The balusters and railings are wrought iron and in excellent condition. Overall, the stairwells are in good condition and only require minor repairs at this time. The attached I.C.E. budget provides for minor repairs to the stairwells at this time. BALCONIES The balconies on this phase of the property are structural concrete and are cantilevered out of the building. Maintenance reports no problems with any of the balconies at this time. There were no reported water leaks or structural defects noted. Balcony enclosures consist of wrought iron rails and require prep, prime, and paint at this time. First floor patios are concrete slab on grade and are in good condition. There are 6 patios that require replacement at this time due to severe cracking. Patios have no privacy fencing of any kind. The attached I.C.E. budget includes prepping, priming, and painting balcony rails and replacement of 6 first floor patios at this time. 6 FOUNDATIONS All of the foundations for the buildings on this property are grid style monolithic concrete slab with integral grade beams with poured in place below grade walls and concrete block walls above grade. At the time of our inspection the foundations appeared to be sound with no visible or blatant evidence of foundation movement. However, an engineering report would be advised to be positive, as not all foundation failures are visible from the building exteriors. Subfloors on floors 2 and 3 throughout the property consist of preformed concrete beams with a 2" lightweight concrete top coat. There were no reported problems with any foundations or subfloors at the time of inspection. The attached I.C.E. budget does not require any repairs at this time. CONCRETE SIDEWALKS Only a minor amount of the sidewalks on the property have elevation changes which are trip hazards. Damaged areas of the sidewalks, which are beyond being ground down, should be removed and replaced to address these problems. There are some areas where tree roots have caused the sidewalks to heave and the trees will be addressed in the LANDSCAPE section of this report while the concrete repairs will be addressed here. The attached I.C.E. budget provides for sidewalk grinding, and replacement at this time. DRIVES AND PARKING LOTS The drives and parking lots on this property are asphalt and in excellent condition. The parking areas were overlaid in 1996. Phase I & II has 344 parking spaces, none of which are covered and 5 permanently marked handicapped spaces. Drainage appears to be good off of the lots with no signs of standing water. There were several curbs and gutters that have been damaged by snowplows and these should be repaired at this time. It is recommended that the entire lot be sealed and striped to protect the integrity of the overlay and extend its useful life. This cost is covered under PARKING below. The attached I.C.E. budget provides for the above mentioned curb and gutter repairs at this time. WINDOWS The windows on this property are single glazed, horizontal sliders, aluminum bronze finished windows. These windows are original and while they do not leak water they do frost over in the winter and cause condensation problems inside the apartment units. There is a recent bid on file for the replacement of all windows and sliding glass doors and we are including this in the attached I.C.E. budget. Because this phase of the project is the one most visible to the street any improvements to this phase should have a positive effect on the entire project. The attached I.C.E. budget provides for the replacement of all windows and patio sliding glass doors at this time. 7 EXTERIOR LIGHTING The exterior lighting on this property is comprised of several fixture types and styles. Wall mount entry light fixtures at the apartment entrances are operated by the complex and all have not been converted to fluorescent from incandescent lighting as of the date of inspection. The back patios do not have light fixtures. The breezeway and stairwell lighting has been converted from incandescent to fluorescent fixtures for savings on the cost of both electricity and maintenance. All buildings have either 150W Par floods or HPS wallpacks, the floods will be converted at this time. There are HPS pole light fixtures on the interior grounds, they are also lit by the HPS wallpacks on the backsides of the buildings. Parking lots are lit by HPS pole lights provided by VA Power, which appear adequate at this time. Current management reports that lighting throughout the property is sufficient at this time. A lighting survey is recommended in the interest of safety and avoiding liability problems. The attached I.C.E. budget provides for HPS wallpacks at this time. LANDSCAPING AND IRRIGATION The landscaping on this property is in good condition, and well planned, overall. The property does not have a sprinkler system and all plants are hand watered by maintenance personnel. Management has a bid on file for the installation of sprinklers throughout the main drive area leading to the Leasing Office and we are including this bid in the attached I.C.E. budget. The trees on the property are in good condition but require a thorough pruning at this time. There are several trees that are too close to the buildings and their branches are causing damage to adjacent buildings and roofs. As mentioned in the SIDEWALK section above, there are several areas where tree roots have caused the adjacent sidewalks to heave and these conditions should be addressed before the sidewalks are repaired. Signage throughout the property appears adequate. Minor improvements are required in the areas of sod, plants, and flowers at the marketing areas. The attached I.C.E. budget provides for sprinkler installation, tree pruning and minor landscape improvements at this time. DRAINAGE On the date of our inspection there was no standing water on the property. Grading away from the building foundations appears adequate. Maintenance reports no moisture problems with any garden level units at this time. The only reported drainage problems were around Buildings 2402 - 2406, which require minor, french drainage. The attached I.C.E. budget provides for the above mentioned drainage repairs at this time. TERMITES On the day of our inspection there was no evidence of termite activity noted. The property has a pest control contract with Dodson Pest Control in place at this time at an annual cost of $530. 8 FENCING This community does not have limited access gates. There are no perimeter fences on this property. PARKING There are a total of 344 parking spaces total on both phases of this property. Five of these spaces are permanently reserved for the handicapped. Parking lots will need to be sealed and striped this year to preserve the integrity of the 1996 overlay. The attached I.C.E. budget includes sealing and striping of the entire parking area at this time. LIFE SUPPORT SYSTEMS Every apartment is equipped with one battery powered smoke detector located in the service hall. The smoke detectors are not monitored. There are no individual fire extinguishers in any of the apartment units. There are 10# ABC fire extinguishers located on each landing of each stairwell. There are additional 10# ABC fire extinguishers located in the office and maintenance shops. There are 2 fire hydrants on this phase of the property. The attached I.C.E.. budget does not require any repairs at this time. 9 AMENITIES SWIMMING POOL There is no swimming pool on this phase of the property. HOT TUB There is no hot tub on this property. TENNIS COURT There are no tennis courts on this property. LAUNDRY ROOM There are 22 laundry rooms on this property. There are a total of 22 washers and 22 dryers. All machines are electric. The vendor is Coinmach. All laundry rooms were in average condition. The equipment was replaced in 1996. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statement on the structural worthiness or integrity of the building(s); rather, the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached photographs or pictures are representations of the property and should be independently evaluated by the recipient. 10 SNOWDEN VILLAGE I APARTMENTS 2352 Cowan Blvd. Fredericksburg, Virginia 22401 EXTERIOR BUDGET: ROOFING Ridge vents, facia. $ 7,700.00 GUTTERS & DOWNSPOUTS Splashblocks, facia, gutters, downspouts. $ 41,140.00 HVAC Electric disconnects, condenser, furnace replacement. $131,890.00 PLUMBING Sewer clean-out, ball valves. $ 37,050.00 HOT WATER Service hot water heaters, replace two heaters. $ 8,816.00 ELECTRICAL Minor repairs, GFI's in bathrooms and kitchens. $ 23,760.00 SIDING/TRIM/FACIA/SOFFITS Facia replacement, stucco touchup, T-111 repairs. $ 26,620.00 EXTERIOR PAINT Paint repaired areas. $ 52,800.00 STAIRWELLS Minor repairs. $ 3,300.00 BALCONIES Paint railings, first floor patio replacement. $ 13,900.00 FOUNDATIONS Good $ 0.00 SIDEWALKS Grind down, and replacement. $ 4,690.00 DRIVES & PARKING LOT Curb and gutter repairs. $ 5,250.00 WINDOWS Window and patio door replacement. $197,000.00 EXTERIOR LIGHTING HPS wallpacks. $ 8,085.00 LANDSCAPE & IRRIGATION Sprinkler installation, tree work, landscaping upgrades. $ 53,400.00 DRAINAGE French drainage. $ 2,500.00 TERMITES No activity- annual contract $ 0.00 PARKING Seal & stripe $ 15,681.00 LIFE SUPPORT SYSTEMS Good $ 0.00 POOL None. $ 0.00 HOT TUB/SAUNA None $ 0.00 FENCE None $ 0.00 LAUNDRY ROOM None. $ 0.00 TENNIS COURTS None. $ 0.00 - -------------------------------------------------------------------------------------------------------- Total Budget: $633,582.00 ===========
11 SNOWPEN VILLAGE I & II APARTMENTS 2352 Cowan Blvd. Fredericksburg, Virginia 22401 INVENTORY 1) MANAGER'S OFFICE 2) 1 ea Sofa 3) 1 ea Living room chair 4) 1 ea Cocktail table 5) 4 ea Wall pictures 6) 2 ea Desks 7) 1 ea Computer desk 8) 3 ea Desk chairs 9) 2 ea Wingback chair 10) 3 ea File cabinets 11) 1 ea Small computer desk 12) 3 ea Bar stools 13) 1 ea Bench 14) 1 ea Magnavox TV 15) 1 ea TV stand 16) 2 ea Packard Bell computer 17) 1 ea Sharp fax machine 18) 1 ea Book shelf FITNESS CENTER 1) 1 ea Exercise bike 2) 1 ea Nautilus machine 3) 1 ea Sit up bench POOL EQUIPMENT 1) 24 ea Chairs 2) 18 ea Lounges 3) 5 ea Tables 4) 3 ea Umbrellas MAINTENANCE EQUIPMENT 1) 1 ea Billie Goat Vacuum 2) 1 ea Leaf blower 3) 1 ea Snow Boss snow blower 4) 1 ea Remington nail gun
Inventory Page l 12 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 3) Typical elevation. 100% stucco exteriors. [PICTURE] Photo No.: 4) Typical roof is 6/12 pitch with 200# 20 yr. 3 Tab composition shingles. Photos Page 2 13 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 5) Gutters are present on 100% of the facia. [PICTURE] Photo No.: 6) Thru the wall combination heat and air units. Photos Page 3 14 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 7) Note rotten wood trim around HVAC units causing water penetration at this time. [PICTURE] Photo No.: 8) 1/3 of the original Magic Chef condensers have been replaced with American Air units. Photos Page 4 15 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 9) Interior view of new American Air unit. [PICTURE] Photo No.: 10) View of original Air Ease gas fired furnace. Photos Page 5 16 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 11) Each unit has individual gas metering. [PICTURE] Photo No.: 12) View under kitchen sink. Note copper domestic supply, PVC DWV lines, and Whirlaway 1/3 HP disposal. Photos Page 6 17 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 13) Gate valve water cut offs. One per building. [PICTURE] Photo No.: 14) Hose bibs are present, but, not operational. Photos Page 7 18 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 17) Individual sub-metering of all units. [PICTURE] Photo No.: 18) View of Federal Pacific 100 Amp interior panel. Note aluminum wire from meter. CoAlr wire for 110V & 220V curcuits. Photos Page 9 19 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 19) View of CoAlr wire for 110V circuit. [PICTURE] Photo No.: 20) No GFI outlets in either bathroom or kitchens. Photos Page 10 20 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 21) Typical electrical transformer sits on concrete pad and has no visible leaks. [PICTURE] Photo No.: 22) Typical siding is stucco over brick with T-111 on gable ends. Photos Page 11 21 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 23) View of typical covered stairwells. [PICTURE] Photo No.: 24) View of underside of stairwells. 100% steel with poured in place concrete treads. Photos Page 12 22 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 25) Balconies are poured in place structural concrete with wrought iron railings. [PICTURE] Photo No.: 26) First floor patios are poured in place concrete with no privacy fencing. Note severe shifting. Photos Page 13 23 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 27) Typical amount of damage found on sidewalks throughout this phase of the complex. [PICTURE] Photo No.: 28) View of parking lot. Photos Page 14 24 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 29) Small access ramps were present throughout the parking areas. [PICTURE] Photo No.: 30) Handicapped parking spaces are provided. Note parking lot lighting is HPS pole light. Photos Page 15 25 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 31) Typical windows are bronze finished, single glazed, horizontal sliders. [PICTURE] Photo No.: 32) Typical parking lot lighting is HPS pole light. Photos Page 16 26 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 33) Many 150W Par floods still present and in need of conversion to HPS wallpacks. [PICTURE] Photo No.: 34) View of grounds. Photos Page 17 27 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 35) Drainage appears to be good with many surface drains throughout the grounds. [PICTURE] Photo No.: 36) Battery powered smoke detectors in all units. Photos Page 18 28 SNOWDEN VILLAGE I 2352 Cowan Blvd. Fredericksburg, Virginia 22401 [PICTURE] Photo No.: 37) All stairwells have one 10# ABC fire extinguisher per landing. Photos Page 19 EX-99.7 40 PHYSICAL INSPECTION REPORT-STURBROOK INVESTORS 1 EXHIBIT 99.7 SUNRISE V APARTMENTS 705 Pool Road Richmond, Va. 23236 (804) 272-4446 Fax (804) 330-7276 PHYSICAL INSPECTION 2 SUNRISE V APARTMENTS Property was built in 1976 Date of Major Renovations: 1997 Gutter Replacement 1995-96 Roof Replacement 1996 Exterior Painting 1994-95 Balcony Renovation Number of Units: 229 Number of Buildings: 23 apartment buildings 3 ROOFS The roofs on all of the buildings on this property are 200#, 20 year, 3 tab composition shingles. These roofs were overlaid in 1995-96 and appear to have a 6/12 pitch. Although maintenance reports no leaks at this time, concerns were raised regarding the integrity of the 7/16" OSB decking and the fact that the entire property now has two layers of shingles. There are several instances where decking is failing and shingles are blowing off due to improper nail length. The attached I.C.E. budget provides for general repairs to all roofs and faulty decking at this time. GUTTERS and DOWNSPOUTS This property has gutters on all facia which lead to downspouts and in most cases, splashblocks. These gutters were installed in 1997 and are in good condition with only minor repairs needed. The most common problem noted was improper installation of splashblocks and insufficient downspout extensions. The attached I.C.E. budget provides for minor additions and corrections to the gutters and splashblocks at this time. HVAC The individual apartment units are cooled by a split through the wall system. These units are located in the service closet of each unit. There are no electric disconnects. The one bedroom units are serviced by one and one half ton condensers, while the two bedroom units are serviced by two ton condensers. Maintenance reports that the most common repairs to these units are compressor failure. 211 of the 229 condensers are original to the property, 22 years old. The original equipment was manufactured by Rheem and it is being replaced with Heil equipment. The heating portion of these systems consist of gas upflow furnaces located in the service closets. Maintenance reports that 221 of the 229 furnaces are original to the property. Overall, these systems have exceeded their life expectancy and are in need of replacement. We recommend starting a replacement program over the next three years. The attached I.C.E. budget provides for general repairs to the heating and air conditioning systems, and the replacement of 1/3 of the units at this time. 4 PLUMBING Main, exterior, cold water lines are copper pipe. Main hot and cold water lines are buried and not insulated. The cold water line enters the building through the slab in the basement level of each building. There are individual building cut offs and they are all gate valves. Maintenance reports many of the gate valves no longer work and should be replaced with ball valves at this time. The domestic water supply in each unit is obtained by CPVC pipe. The DWV system is PVC plastic pipe. There are hose bibs at each building and all of those observed were frostproof. There are garbage disposals in each unit. All observed equipment was Whirlaway 1/3 HP. Maintenance reports that 68 of 229 disposals are original, 22 years old. There are individual washers or dryers connections in every unit on the property. The property leases the machines from Automatic Leasing and subleases them to the residents who request them. There are a total of 73 washers and 73 dryers under this agreement. Maintenance reports recurring sewer problems around Buildings No. 706 to 711. We are providing for proper repairs and a regular clean out of the entire system at this time. All of these interior systems appeared to be in good working condition on the date of our inspection. The attached I.C.E. budget includes disposal replacement, sewer repair, and sewer clean out at this time. HOT WATER There are three common area hot water heaters on this property. The laundry room has and original 80 gallon gas fired boiler, which is in need of replacement. The clubhouse has a 10 gallon State 120V electric heater, which is in good condition. The maintenance shop has a 40 gallon gas fired boiler which is in need of regular service at this time. The apartment units each have one 40 gallon gas fired boiler located in the utility closet. The original equipment was manufactured by Ruud and the replacements have been by American Proline. Maintenance reports that 24 of the 229 boilers have been replaced at this time. While all systems appear to be in good working order we are providing for the first 1/3 of the individual boilers to be replaced as they have all exceeded their life expectancy. The attached I.C.E. budget provides for the replacement of the laundry room boiler and 1/3 of the individual boilers at this time. ELECTRICAL All apartments on this property are individually metered for electricity. The electrical wiring between the transformer and the meter base is aluminum. The electrical wiring between the meter base and the interior panel is aluminum. Interior wiring in apartments is copper for the 110 volt and 220 volt circuits. We observed electrical equipment manufactured by ITE at the meter and ITE 75 Amp panels in the individual units. There were no Ground Fault Interrupt circuits in any bathrooms or kitchens. There are 15 transformers on this property which are mounted on concrete pads and appear to be in good condition, with no leaks visible. The attached I.C.E budget provides for installation of GFI's, and minor repairs to the electrical systems this time. 5 EXTERIOR SURFACES SIDING This property is constructed of traditional wood framing. 20% of the exterior surfaces are brick, 80% is painted T-111 siding with painted wood trim, and painted plywood soffits. The entire property was painted in 1996. Although it appears that the siding was properly prepped before painting there is extensive weathering, blistering, and outright failure of the T-111 at this time. Current management has bids on file for vinyl siding and we are including this price in the attached I.C.E. budget at this time. The attached I.C.E. budget provides for vinyl siding at this time. STAIRWELLS There are no exposed exterior stairs on this property. The interior stairwells are constructed with wooden stringers and wooden treads under carpet. Overall, the stairwells are in good condition, and any routine repairs are performed upon turnover of the units. The attached I.C.E budget does not require any repairs at this time. BALCONIES The balconies on this property consist of 2 x 6 wood decking atop 2 x 12 wooden framing cantilevered into the building. There is no soffit material below these balconies. Maintenance reports a problem with water infiltration above most first floor patio doors. See Photo No. 15. We are providing for the necessary corrections to the remaining balconies at this time. Balcony enclosures consist of pressure treated wooden balusters and rails and are unpainted. Balusters and rails are in good condition. First floor patios are concrete slab on grade and are in good condition. There are 5 or 6 patios that were being replaced at the time of inspection. The attached I.C.E. budget includes repairing all balconies at this time. FOUNDATIONS All of the foundations for the buildings on this property are grid style monolithic concrete slab with integral grade beams with poured in place below grade walls and concrete block walls above grade. At the time of our inspection the foundations appeared to be sound with no visible or blatant evidence of foundation movement. However, an engineering report would be advised to be positive as not all foundation failures are visible from the building exteriors. Subfloors on floors 2 and 3 throughout the property consist of 3/4" plywood with 1 3/4" gypcrete. Maintenance reports several instances of subfloor failure, conditions where the gypcrete has crumbled. The proper repair for this condition would be the removal of the affected area and replacing the gypcrete with plywood to avoid future deterioration. The attached I.C.E. budget provides for the replacement of failing subfloors on floors 2 and 3 at this time. 6 CONCRETE SIDEWALKS The sidewalks on this property were undergoing extensive repairs on the date of our inspection. We are told by the contractor and management that upon completion, all trip hazards will be corrected. Many buildings have ramps from the driveway to the entrance, but not all. This condition should be grandfathered in the transition, but, we are budgeting some correction monies at this time. The attached I.C.E. budget provides beginning access ramps at this time. DRIVES and PARKING LOTS The drives and parking lots on this property are asphalt and in average condition. There are 367 parking spaces, none of which are covered and 9 permanently marked handicapped spaces. Drainage appears to be good off of the lots with no signs of standing water. There were several curbs and gutters that have been damaged by snow plows and these should be repaired at this time. It is recommended that the entire lot be sealed and striped to protect the integrity of the overlay and extend its useful life. This cost is covered under PARKING below. The attached I.C.E. budget provides for minor asphalt, curb and gutter repairs at this time. WINDOWS The windows on this property are single glazed, single hung, aluminum mill finished windows. The windows appear to be in poor condition. Screens are broken or missing, splines are severely damaged, windows are mismatched, See Photo No. 20. The sliding glass doors on this property are single glazed, aluminum mill finished doors. Maintenance reports severe problems with sagging headers above most patio doors causing binding and the leaking mentioned in the BALCONY section of this report. Maintenance reports that it has begun a replacement program for 69 of the 229 front doors at this time. It is our opinion that all windows, patio doors, and the remaining front doors should be replaced along with the VINYL SIDING PROJECT. This property currently gets below market rents and it LOOKS IT! These improvements will bring immediate benefits in the form of rental increases and decreased maintenance expenses. The attached I.C.E. budget provides for the replacement of windows, patio doors, and remaining front doors at this time. 7 EXTERIOR LIGHTING The exterior lighting on this property is comprised of several fixture types and styles. Wall mount entry light fixtures at the apartment doors are operated by the resident and have been converted to fluorescent from incandescent lighting as of the date of inspection. The back patios have wall mount coach lamps, which have been converted to fluorescent at this time. There are NO exterior building lights. We are providing for the installation of HPS wallpacks on every building. Parking lots are lit by Virginia Power streetlights. Management reports that these are adequate. A lighting survey is recommended in the interest of safety and avoiding liability problems. The attached I.C.E. budget provides for additional HPS wallpacks at this time. LANDSCAPING and IRRIGATION The landscaping on this property is in average condition, and well planned, overall. The property does not have a sprinkler system and all plants are hand watered by maintenance personnel. We are providing for 8 sprinkler systems to cover marketing and signage areas at this time. The trees on the property are in good condition but require a thorough pruning at this time. There are several trees that are too close to the buildings and their branches are causing damage to adjacent buildings and roofs. Signage throughout the property is in need of updating. Management has a quote on file for this work. Minor improvements are required in the areas of sod, plants, and flowers at the marketing areas. The attached I.C.E. budget provides for sprinkler installation, tree pruning, signage, and minor landscape improvements at this time. DRAINAGE On the date of our inspection there was no standing water on the property. Maintenance reports several instances where water infiltrates the units under patio doors. There are several instances where the grade slopes toward the buildings. Overgrown trees have caused severe erosion around the entrance driveway. This area requires retaining walls around the tree bases to prevent exposing the roots and killing the trees. A french drain system that was installed in 1997 around Buildings 701-703 appears to have been installed above the lowest grade against the buildings. Additionally, the exit drains are running up hill! We are providing for the necessary drainage corrections at this time. After these drainage corrections it will be necessary to add fill dirt and sod to insure the integrity of these repairs. The attached I.C.E. budget provides for drainage corrections, retaining walls, fill and sod. TERMITES On the day of our inspection there was no evidence of termite activity noted. Maintenance reports that there have been 6 occurrences of termites this season. The property has a pest control contract with Dodson Pest Control in place at this time at an annual cost of $653. The attached I.C.E. budget provides for the interior repairs to the affected units. 8 FENCING This community does not have limited access gates, but, due to the layout of the property and only one entrance, this would be an easy addition. A market survey is recommended to determine the cost/benefit of this addition. We estimate the cost at approximately $35K but are not including this estimate in the attached I.C.E. budget. There are no perimeter fences on this property. There are screening fences surrounding each of the dumpster areas and they require repairs and in some cases replacement at this time. The attached I.C.E. budget includes the repair or replacement of the dumpster fences. PARKING There are a total of 367 parking spaces on this property. Nine of these spaces are permanently reserved for the handicapped. Parking lots will need to be sealed and striped this year. The attached I.C.E. budget includes sealing and striping of the entire parking area. LIFE SUPPORT SYSTEMS Every apartment is equipped with one battery powered smoke detector located in the service hall. The smoke detectors are not monitored. The three bedroom units only have one smoke detector, which is inadequate coverage due to the layout of the units. No exterior fire alarms were noted on the property. There are no individual fire extinguishers in any of the apartment units. There are no 10# ABC fire extinguishers located in the shop, laundry room, or office. There are 7 fire hydrants on this property. The attached I.C.E. budget provides for the additional smoke detectors, 2# fire extinguishers in each unit, and 10# fire extinguishers in the shop, laundry room, and office. 9 AMENITIES SWIMMING POOL There is one swimming pool on this property. It is not heated. The pool is located in the center of the complex next to the Clubhouse/Office. The pool is made of concrete block on a concrete slab. There are two severe cracks in the pool at this time. We have called for an Engineer's Report to determine the severity of the cracks and the recommended repairs. There is currently a bid on file for a gunite overlay of the pool shell and a complete replacement of the concrete pool deck. This bid totals $109.5K. The root of the problem appears to be erosion on the North side of the pool along the creek. The bid for pool repairs does not include any reinforcement of the ground between the creek and the pool. The bid appears to be extremely high for a pool of this size. We are including this bid as Exhibit A. The fence, which surrounds the pool, is 4'6" high wrought iron and is in good condition. All pool equipment is original and in need of replacement. The attached I.C.E. budget provides total pool, deck, and equipment replacement pending the Engineer's report. HOT TUB There is no hot tub on this property. SAUNA There is no sauna on this property. TENNIS COURT There are two tennis courts on this property, which were being resurfaced on the date of inspection. LAUNDRY ROOM There is one laundry room on this property. There are a total of 7 washers and 7 gas fired dryers. The vendor is Coinmach. The laundry room is in need of tile, paint, and lighting at this time. WEIGHT ROOM There is no weight room on this property. 10 SAND VOLLEYBALL COURT There is a sand volleyball court on this property. Management requests that it be removed at this time as it is placed too close to the adjacent apartments and causes too much noise and damage to the buildings. PLAYGROUND There is a playground on the property. It is brand new and in excellent condition and does not require any repairs at this time. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). No physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statement on the structural worthiness or integrity of the building(s), rather, the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached photographs or pictures are representations of the property and should be independently evaluated by the recipient. 11 SUNRISE APARTMENTS 705 POOL ROAD RICHMOND, VIRGINIA 23236 EXTERIOR BUDGET:
ROOFING General repairs. $ 23,000.00 GUTTERS & DOWNSPOUTS Minor corrections and additions. $ 5,750.00 HVAC General repairs, electric disconnects, system replacements. $ 145,625.00 PLUMBING Ball valves, disposals, sewer repair, sewer clean-out. $ 18,450.00 HOT WATER Replace laundry room heater, Individual heater replacement. $ 18,250.00 ELECTRICAL GFI's, minor repairs. $ 26,335.00 SIDING/TRIM/FACIA/SOFFITS Vinyl siding. $ 350,000.00 EXTERIOR PAINT Minor touchups throughout $ 9,200.00 STAIRWELLS None. $ -- BALCONIES Repair balconies. $ 20,000.00 FOUNDATIONS Subfloors 2 & 3 repair. $ 60,000.00 SIDEWALKS Beginning access ramps. $ 10,000.00 DRIVES & PARKING LOT Asphalt, curb and gutter repairs. $ 20,000.00 WINDOWS Window replacement, patio door replacement, Entry door replacement. $ 642,895.00 EXTERIOR LIGHTING HPS wallpacks. $ 11,270.00 LANDSCAPE & IRRIGATION Sprinkler installation, tree work, signage, and landscaping. $ 38,950.00 DRAINAGE French drains, retaining walls, fill, & sod. $ 23,750.00 TERMITES Repair affected areas. $ 1,500.00 PARKING Seal & stripe $ 10,500.00 LIFE SUPPORT SYSTEMS Smoke detectors, 2# fire extinguishers, 10# fire extinguishers. $ 18,585.00 POOL Replacement pending Engineer's report. Budget amount $ 100,000.00 SAND VOLLEYBALL COURT Remove and resod. $ 6,000.00 FENCE Dumpster surrounds. $ 3,000.00 LAUNDRY ROOM Remodel. $ 3,500.00 TENNIS COURTS Currently resurfacing. $ -- - ------------------------------------------------------------------------------------------------------------------------ Total Budget: $ 1,566,560.00 ===============
12 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 INVENTORY 1 ) MANAGER'S OFFICE 2 ) 1 ea Executive desk 3 ) 1 ea White executive desk 4 ) 1 ea Leasing desk 5 ) 1 ea Computer desk 6 ) 1 ea Typewriter desk 7 ) 4 ea Desk lamp 8 ) 1 ea Sofa table 9 ) 1 ea Executive chair 10 ) 4 ea Multi-color chairs 11 ) 4 ea Bar stools 12 ) 1 ea Dining table 13 ) 1 ea Sectional sofa 14 ) 7 ea Valance 15 ) 1 ea Armoire 16 ) 1 ea TV 17 ) 1 ea VCR 18 ) 1 ea Coffee table 19 ) 1 ea Copier 20 ) 2 ea File cabinet 21 ) 1 ea Typewriter 22 ) 1 ea Black chair 23 ) 1 ea Fax machine 24 ) 3 ea Telephone 25 ) 2 ea Wall clock 26 ) 2 ea Fig trees 27 ) 5 ea Picture 28 ) 5 ea Decorative plants 29 ) 1 ea HP Deskjet 520 printer 30 ) 1 ea Mitac computer 31 ) 1 ea Camera MODEL APARTMENT "YOU'RE A STAR" 32 ) 1 ea Fake book set 33 ) 1 ea Copper sun face 34 ) 1 ea Terra cotta sun face Inventory Page 1 13 35 ) 3 ea Blue stars on hangers 36 ) 1 ea Floor lamp 37 ) 1 ea Plant tree 38 ) 2 ea Napkins 39 ) ea Wire teapot 40 ) ea Wire basket 41 ) ea Star glasses 42 ) ea Paper star plates 43 ) ea Ivy basket 44 ) ea White towels 45 ) ea Blue hand towel 46 ) ea Rose bath cloths 47 ) ea Rose hand towels 48 ) ea Pink bath towel 49 ) ea Rose bath towel 50 ) ea Pink bath rug 51 ) ea Pink shower curtain 52 ) ea Star basket & candles MODEL APARTMENT "CHILI PEPPER" 53 ) 2 ea Straw hats 54 ) 1 ea Black bean bag 55 ) 1 ea Wicker circular rack 56 ) 1 ea Red, Yellow, & Black rugs 57 ) 1 ea Wicker basket 58 ) 1 ea White clay basket 59 ) 4 ea Red patterned rugs 60 ) 3 ea Chill pepper bandana's 61 ) 2 ea Sandals 62 ) 1 ea Red, Green, Black pillows 63 ) 1 ea Green candle & candle holder 64 ) 2 ea Clay pots 65 ) 3 ea Margarita Glasses 66 ) 3 ea Chill peppers bottles 67 ) 2 ea Red bowls 68 ) 2 ea Chili pepper print bowls 69 ) 2 ea Red checkered placemats 70 ) 2 ea String of chili peppers 71 ) 2 ea Chili pepper towels & pot holders 72 ) 2 ea Hunter green shower curtains 73 ) 2 ea Black bath cloths 74 ) 2 ea Yellow hand towels Inventory Page 2 14 75 ) 2 ea Red bath towels 76 ) 1 ea Black, yellow gift bags 77 ) 6 ea White hangers 78 ) 2 ea Plants 79 ) 2 ea Floor lamps 80 ) 2 ea Margarita Glasses 81 ) 2 ea Water goblet 82 ) 3 ea Wall mirrors 83 ) 4 ea Napkins 84 ) 1 ea Table clock 85 ) 3 ea Waste basket 86 ) 2 ea Picture 87 ) 4 ea Shower curtain 88 ) 7 ea Towels 89 ) 3 ea Bath rug 90 ) 4 ea Soap dish 91 ) 3 ea Lotion dispenser FRONT OFFICE 92 ) 1 ea Side chair 93 ) 1 ea Computer chair 94 ) 1 ea Stereo 95 ) 1 ea Christmas tree 96 ) 1 ea Christmas bulbs 97 ) 1 ea Executive desk 98 ) 1 ea Executive chairs 99 ) 1 ea Bar stools 100 ) 1 ea Chairs 101 ) 1 ea 36" glass table 102 ) 1 ea Lamp MAINTENANCE EQUIPMENT 103 ) 1 ea 32' extension ladder 104 ) 1 ea 24' extension ladder 105 ) 1 ea 10' ladder 106 ) 1 ea Air compressor 107 ) 1 ea Carpet vac 108 ) 1 ea Sunbeam snow blower 109 ) 1 ea Snow shovels 110 ) 1 ea Steamex carpet cleaner 1ll ) 1 ea Push broom 112 ) 1 ea Lobby broom Inventory Page 3 15 113 ) 1 ea Dust pan 114 ) 1 ea Ice chipper 115 ) 1 ea Hand saw 116 ) 1 ea Keyhole saw 117 ) 1 ea Screen roller 118 ) 1 ea Tape measure 119 ) 1 ea Halogen light 120 ) 2 ea Motorola 2-way radio 121 ) 1 ea Rockwell grinder 122 ) 1 ea Homelite leaf blower 123 ) 1 ea Turbo torch 124 ) 1 ea 6' ladder 125 ) 1 ea 4' ladder 126 ) 1 ea TIF gas leak detector 127 ) 1 ea CO detector 128 ) 2 ea 30 gal. recovery tank 129 ) 1 ea 50 gal. recovery tank 130 ) 1 ea Thermoflo recovery machine 131 ) 1 ea Robinair vacuum pump 132 ) 1 ea Hirsh table saw 133 ) 1 ea Black & Decker mitre saw 134 ) 1 ea Ilco key machine 135 ) 1 ea Black & Decker jig saw 136 ) 1 ea Skil 3/8" electric drill 137 ) 1 ea Black & Decker planer 138 ) 1 ea Little Giant sump pump 139 ) 1 ea Hand truck POOL EQUIPMENT 140 ) 6 ea Round tables 141 ) 6 ea Umbrellas 142 ) 24 ea Chairs 143 ) 43 ea Lounges 144 ) ea Life ring 145 ) ea Shepherd's hook 146 ) ea Vacuum hose 147 ) ea Vacuum head 148 ) 12 ea Side table 149 ) 2 ea Picnic table 150 ) 6 ea Ash urn Inventory Page 4 16 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No. 1) Main entrance sign on Trade Road. [PICTURE] Photo No.: 2) Typical elevation. All buildings are three stories. 20% brick, 80% T-111 siding with 6/12 pitched composition roofs. Photos Page 1 17 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 3) Typical apartment entrances. Note replaced metal door. Converted coach lamp with fluorescent bulbs. [PICTURE] Photo No.: 4) View of Leasing Office/Clubhouse. Photos Page 2 18 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 5) Typical roof. 6/12 pitch 200# 20 year composition shingles. Note 100% gutter coverage. [PICTURE] Photo No.: 6) Exterior view of thru the wall condensing unit. Individual electric meters. Individual gas meters. Photos Page 3 19 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 7) Interior view of gas fired furnace located in utility closets. [PICTURE] Photo No.: 8) View under kitchen sinks. Copper domestic supply, PVC DWV lines, 1/3 HP disposals. Photos Page 4 20 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 9) Individual water cut offs to each building. [PICTURE] Photo No.: 10) All units have washer and dryer connections. Photos Page 5 21 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 11) Typical hot water heater is 40 gallon gas fired and located in the utility closet in each unit. [PICTURE] Photo No.: 12) ITE 75 Amp interior panel. Aluminum feed. Copper wiring to the 110V and 220V circuits. Photos Page 6 22 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 13) No GFI outlets in bathrooms or kitchens. [PICTURE] Photo No.: 14) View of siding delamination. Photos Page 7 23 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 15) Close-up of balcony flashing correction. [PICTURE] Photo No.: 16) Sidewalks were being replaced on the date of inspection. Photos Page 8 24 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 17) Overview of parking areas. [PICTURE] Photo No.: 18) One of nine permanently reserved handicapped spaces. Photos Page 9 25 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 19) Typical size of parking lot damage seen. [PICTURE] Photo No.: 20) View of windows. Note mixed types. Photos Page 10 26 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 21) Typical parking lot light provided by Virginia Power. [PICTURE] Photo No.: 22) Erosion at entrance requires tree pruning and retaining walls. Photos Page 11 27 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 23) Erosion requires tree pruning and ground cover. [PICTURE] Photo No.: 24) Previous tree removal requires stump removal. Photos Page 12 28 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 25) View of North side of Tennis Courts. Note falloff toward creek on the right. [PICTURE] Photo No.: 26) View of North side of Swimming Pool. Note falloff toward creek on the left. Photos Page 13 29 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 27) Battery powered smoke detectors in each unit. [PICTURE] Photo No.: 28) One of seven fire hydrants on the property. Photos Page 14 30 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 29) Swimming pool with concrete deck. Cinderblock pool walls have two leaks. Wrought iron fencing is in good condition. [PICTURE] Photo No.: 30) Deck failure on the North side toward the creek. Photos Page 15 31 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 31) Sand Volleyball Court to be removed. [PICTURE] Photo No.: 32) Typical dumpster surround. Photos Page 16 32 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 33) View of Laundry Room. [PICTURE] Photo No.: 34) Tennis Courts were being resurfaced at the time of inspection. Photos Page 17 33 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 35) Newly installed Playground. [PICTURE] Photo No.: 36) Mailboxes. Photos Page 18 34 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 37) View of Maintenance Shop. [PICTURE] Photo No.: 38) View of Maintenance Shop. Photos Page 19 35 SUNRISE APARTMENTS 705 Pool Road Richmond, Virginia 23236 [PICTURE] Photo No.: 39) View of Maintenance Shop. Photo No.: 40) Photos Page 20 EX-99.8 41 PHYSICAL INSPECTION REPORT-SYCAMORE CREEK ASSOC. 1 EXHIBIT 99.8 SYCAMORE CREEK 12131 SYCAMORE TERRACE CINCINNATI, OH 45249 513-489-7193 PHYSICAL INSPECTION 2 SYCAMORE CREEK APARTMENTS PROPERTY WAS BUILT IN 1991 DATE OF MAJOR RENOVATIONS: N/A NUMBER OF UNITS: 295 NUMBER OF BUILDINGS: 25 APARTMENT BUILDINGS AND ONE FREE STANDING CLUBHOUSE 2 3 ROOFS The roofs on the buildings at this property are 20 year old #230, composition, shingles which we were advised were replaced in 1991. Visual inspection corroborates this. The roofs appear to have a 5/12 pitch. We anticipate that the roofs have a life expectancy of another seven to nine years. The roofs appear to be in good condition, and we are calling for no repairs at this time. GUTTERS AND DOWNSPOUTS This property is currently equipped with gutters and downspouts. Some of the gutters and downspouts are six inch commercial, which are adequate in the areas where they are installed. However, the original gutters are four inch residential gutters and these gutters are in very poor condition, and we recommend replacement. The attached I.C.E. budget allows for installation of six inch commercial gutters where the four inch commercial gutters are now located. HVAC The heating on this property is obtained by an electric heat strip in the air handling unit of each apartment. The cooling system is obtained through a split system with a 1 1/2 ton condenser unit for the one bedroom and 2 ton for the two and three bedroom units. The air handling units are located in the furnace utility room of each unit. The A/C condensers are located outside with slab on grade and all have electrical disconnects. The heat systems and A/C units are Bryant. Most of the HVAC units appear to be original to the property. Approximately 15% of the condenser units have been replaced over the years. The HVAC system appears to be in good working condition. Budget reflects general repairs only. PLUMBING The main exterior cold water lines are copper. The main water lines are buried and not insulated. There are water shut-offs at each building using gated valves. The domestic water supply for each building is obtained by copper 1/2 inch water line. The DWV system is PVC pipe. Each apartment is equipped with a 1/3 h.p. garbage disposal. All cut-offs for the cold water are gated valves, which are located in the laundry rooms of each unit. All of the interior systems appear to be good condition and have no major deficiencies. Budget reflects general repairs and maintenance. HOT WATER Each individual unit on this property has a Bryant electric, 52-gallon hot water heater. The hot water heaters are not set in overflow pans. The water heaters are located in the utility room of all apartments. Generally, the water heaters appear to be in good condition. Budget reflects general repairs and maintenance. 3 4 ELECTRICAL All apartments on this property are individually metered for electricity. The electrical wiring between the transformer and meter base is aluminum. The electrical wiring from the exterior disconnect to the meter is aluminum. The electrical wiring between the meter disconnect and the breaker box is aluminum. All observed equipment for electrical was General Electric brand. The internal breaker box is 125 amp. The internal wiring for each individual unit has copper for the 110-amp circuit, and copper for the 220-amp circuit to the air conditioner. The remaining 220 amp circuits are aluminum wiring. All apartments on the property are equipped with a ground fault interruption circuit in the bathroom. The electrical equipment is in generally good condition with no major deficiencies or problems. There are 23 transformers on the property. Budget reflects general repairs. 4 5 EXTERIOR SURFACES SIDING This property is constructed of standard wood framing and has cedar wood siding. The below ground portion of the walls are of cinderblock construction. The siding is original to the complex and is in poor condition. There are holes in the siding, the siding has warped, broken, shrunk and most of the knot holes have fallen out. We were advised by the district property manager that the complex is being refinanced at the present time and part of the refinancing package is for the replacement of the siding. It is intended that the siding be laid over with a vinyl-type siding. This will eliminate the need for painting in the future. Because we do not have the information regarding this budgeted item and because the refinancing is not complete at this time we have included the replacement of the siding in the I.C.E. budget. Of course, with replacement of the siding we will allow for replacement of the soffits and trim. The I.C.E. budget that we are submitting is for replacement of the cedar siding but the vinyl siding replacement is economically compatible. The siding bid also allows for repairs to the chimneys. It is our understanding that the chimneys are not framed property and to replace the siding on these a reframing of these areas will be necessary. STAIRWELLS There are no exterior stairwells on this property. The internal stairwells are of wood frame construction with adequate handrails The stairwells appear to be in good condition and we are not calling for any repairs at this time. BALCONIES/PATIOS The balconies on this property consist of standard wood framing. The balconies have wood decks and picket rail enclosures. The balconies are in good condition and only require minor repairs. The below grade patios are concrete slabs. To drain the below grade patios a drainage system has been installed. The patios are generally located approximately four foot below ground level. They currently have railroad ties walls or enclosures. The railroad ties are deteriorating and will require replacement. We are including replacement of these in the I.C.E. budget. FOUNDATIONS All foundations for the buildings on this property consist of a grid style monolithic concrete slab with integrated grade beams. There is a block wall built on the exterior perimeter of the foundation that is approximately four foot high. This would be the below ground section of the lower level. Currently all foundations appear to be in good condition with no evidence of foundation movement. However, an engineer report would be advised to be positive as not all foundation failures are visible from the building exterior. 5 6 CONCRETE SIDEWALKS A moderate amount of sidewalks on the property have elevation changes which are considered trip hazards. Replacement of these sections of sidewalk will be necessary to alleviate the problem. This is reflected in the I.C.E. budget. DRIVES and PARKING LOTS The drives and parking lots on this property are asphalt. The asphalt paving is in good condition and currently does not need any major repair work. Sealing and restriping of the asphalt parking areas is included in the I.C.E. budget. WINDOWS The windows on this property are thermal pane hung, aluminum. The windows are original to the property. The windows are generally in good condition. However, there is some problem with fogging of the windows, as well as fogging of the sliding patio doors. The I.C.E. budget reflects replacement of the fogged windows that were present at the time of our inspection. EXTERIOR LIGHTING The exterior lighting on this property is comprised of several types and styles of fixtures. The wall mounted apartment entry light fixtures and ceiling light fixtures are adequate. However, security lighting located throughout the property is inadequate in some areas and, also, the pole lighting is in very poor condition. The I.C.E. budget reflects addressing these problems. However, it would be our opinion that a lighting survey be completed on the property in the interest of safety and avoiding liability problems. LANDSCAPING AND IRRIGATION The landscaping on this property is in fair condition, but well planned overall. The property does not have a sprinkler system which is typical of the properties in this area. The property does need the landscaping regraded for drainage purposes. The property was subject to two floods in 1997. We did not address the drainage and landscaping problems in the I.C.E. budget. We are allowing for installing of additional drains from the below grade patios and we are in hopes that this will take care of a lot of the drainage problems. For your information, we have been advised that to rearrange the drainage would cost approximately $180,000.00 to $200,000.00. Until the additional drains are installed we felt it was premature to include this much grading and landscape adjustment in the I.C.E. budget. 6 7 DRAINAGE On the date of our inspection there was no standing water on the property. We were advised by the district manager that there was a problem regarding two floods that occurred during the summer of 1997. The property was subjected to heavy downpours in excess of five inches of rain in twenty-four hours. As a result, the below grade patio enclosures filled with water. These patio enclosures are approximately four foot tall and are lined with railroad ties. There is a drain in the bottom of the patio but the drain was insufficient to handle all the water. As a result, the below grade patios filled up with water and seeped through the patio doors. This inundated the lower levels of the apartment buildings. To prevent a reoccurrence of this problem we have allowed for installation of additional drainage to take the water from the below grade patios. TERMITES Four of the buildings on the property have been treated for termites. We were advised that Building #17 has slight damage around the windows from termites. These buildings currently have contracts with Terminix Pest Control. We were advised that the damage to the buildings is relatively minor. However, there may be unseen damage in the covered exterior walls of the building. FENCING This is not a gated community. There is a new wood fence surrounding the swimming pool with an attached multi-level gate. The swimming pool fence is in good to excellent condition. There are chain link fences around the tennis court which are also in good condition and do not require repairs. There is not any fencing around the dumpsters and, for aesthetic purposes, we felt that installation of dumpster fencing was appropriate. Also, we are allowing for the staining of the fence around the swimming pool and decking which is also wood. PARKING There are a total of 745 parking spaces on this property. None of these are covered. There are 3 handicapped parking spots and additional handicap parking is added by signs. There appears to be sufficient ADA access to the walkways, office and clubhouse from the parking lots. LIFE SUPPORT SYSTEMS Every unit is equipped with a hard wired smoke detector located in the hall of the apartment. There are 2.5 lb. ABC fire extinguishers located in the halls on each landing. There are fire extinguishers located in all the common areas such as the clubhouse and maintenance shop. There are seven fire hydrants on this property and one alarm system in the clubhouse. 7 8 AMENITIES SWIMMING POOL There is one swimming pool on this property and it is not heated. It is located on the backside of the office building or clubhouse. The concrete deck surrounding the pool is in fair condition and it has recently been coated with rubber rock. It appears that the deck is in adequate condition. The fence surrounding the pool was replaced in 1997. The pump and filters appear to be in good condition with no apparently deficiencies. TANNING BED There is one tanning bed located on the property in the basement of the clubhouse. The tanning bed is a Montage Baywolf 24 Tanning System. HOT TUB There is no hot tub on this property. TENNIS COURT There are two tennis courts located on this property. The courts are lit and have ten foot chain link fence as an enclosure. The playing surface is in need of repairs and resurfacing. LAUNDRY ROOM There are 53 laundry rooms located in the interior halls of the property buildings. The equipment is owned by Cincinnati Coin Laundry which pays a portion of the proceeds to the property owners. WEIGHT ROOM There is one weight room on this property. The weight room is located on the first floor of the clubhouse building. The weight room condition is excellent and was completely remodeled in 1996 when the fire occurred to the clubhouse. The weight room contains a treadmill, and a four station nautilus system. PLAYGROUND There is a playground located on the property. The playground slide and swing apparatus is in poor condition. The I.C.E. budget reflects replacement of this apparatus along with remulching of the playground area. 8 9 BASKETBALL COURT There is one concrete basketball court located on this property. It appears to be in average condition. Repairs do need to be made to the concrete and the basketball net and pole need replaced. This report is the opinion of the author. It is based principally on observations of the exterior of the building(s). Physical testing has been done. Concealed defects, if any, have not been analyzed. The author is not making any statement on the structural worthiness or integrity of the building(s), rather, the author is merely expressing a general opinion on the type of repairs that may be needed based on generalized observations. No warranty, guarantee, or certification is given by this report. The attached photographs or pictures are representations of the property and should be independently evaluated by the recipient. 9 10 Sycamore Creek 12131 Sycamore Terrace, Cincinnati, OH 45249
EXTERIOR BUDGET: ---------------- ROOFING Good $0.00 GUTTERS & DOWNSPOUTS Replace 4" gutters $20,250.00 HVAC General repairs $5,200.00 PLUMBING General repairs $2,600.00 HOT WATER General repairs $5,200.00 ELECTRICAL General repairs $2,600.00 SIDING/TRIM/FACIA/SOFFITS Replacement of all siding, soffits & facia $842,000.00 EXTERIOR PAINT Repaint/stain $118,000.00 STAIRWELLS Good $0.00 BALCONIES Replace R.R. tie patio enclosures & general repairs $83,500.00 FOUNDATIONS Good $0.00 SIDEWALKS Replacement and repair $32,300.00 DRIVES & PARKING LOT Seal and restripe $11,500.00 WINDOWS Replace fogged thermal pane windows $10,170.00 EXTERIOR LIGHTING Pole light and general repairs $20,000.00 LANDSCAPE & IRRIGATION General repairs & tree trimming $8,000.00 DRAINAGE Additional drainage from below grade patios $143,000.00 TERMITES Under contract $0.00 PARKING Good $0.00 LIFE SUPPORT SYSTEMS Good $0.00 FENCE Fence around dumpsters/swim. Pool & deck staining $5,500.00 LAUNDRY ROOM Good $0.00 POOL & TANNING BED Good $0.00 TENNIS COURTS Resurface S4,500.00 PLAYGROUND Play apparatus and mulch $5,000.00 WEIGHT ROOM Good $0.00 BASKETBALL COURT Repairs $1,000.00 - ------------------------------------------------------------------------------------------------------------------------- Total Budget: $1,320,320.00 =============
11 INVENTORY SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 454249 MANAGERS OFFICE 1) 1 AT&T phone 2) 1 Large credenza 3) 1 Large wooden desk with side arm 4) 1 Large four drawer metal cabinet 5) 1 Executive chair 6) 2 Fabric chairs 7) 1 Nutone master radio controller 8) 1 Dry erase board 9) 1 (Leased) helium tank 10) 1 Pentium processor Colorado 350 IQ000450 11) 1 Digiview 13 inch screen monitor AMPJD144 12) 1 DeskJet 600c S66401HOXP 13) 1 Polaroid 600 camera 14) 1 Texas Instruments calculator TI-5033SV 15) 1 Petty cash box 16) 1 P-touch label maker G68337698 17) 1 desk calendar BOOKKEEPERS OFFICE 1) 2 Fabric desk chairs 2) 2 Small wooden file cabinets 3) 1 AT&T Phone 4) 1 Wooden desk 5) 1 Wooden credenza 6) 1 Panasonic Fax Machine 6EBRC128520 7) 1 Three hole punch 8) 1 Two hole punch 9) 1 Desk calendar 10) 1 SX-4000 Electric typewriter J6650724 11) 1 Deposit box 12) 1 Texas instrument calculator C-1295D 13) 1 Tape dispenser 14) 1 Picture 15) 1 Bulletin board CLUBHOUSE 1) 8 Green fabric chairs 2) 2 Wooden tables 3) 1 Zenith 62" wide screen PVY6067DT 4) 1 Sharp 4-head VCR VC-H9540 5) 1 Two cushion maroon couch 6) 1 Two cushion maroon loveseat 7) 1 Camel color arm chair 8) 1 Cast iron fireplace set 12 Page 2 LEASING AREA 1) 3 Fabric desk chairs 2) 1 AT&T Phone 3) 1 Master key alarm key pads 4) 1 SX-4000 Electric typewriter F56982932 5) 1 Ricoh ft. 4215 Copier 3594050570 6) 1 Desk calendar 7) 2 Staplers 8) 1 Tape dispenser 9) 1 Fish bowl and fish 10) 1 Set of dry erase markers 11) 1 Wooden desk with side arm CLUBHOUSE KITCHEN 1) 1 Hot Point spacemaker microwave 2) 1 GE Refrigerator 3) 1 Connoisseur Home Concepts Coffee Maker 4) 1 Otis Spunkmeyer cookie oven (leased) 5) 73 Video tapes for rental 6) 1 Video shelf holder 7) 1 Set of basic white dishes 8) 1 Set of basic silverware 9) 9 Tool holder 10) 2 Hot pad holders 11) Miscellaneous pots, pans and bowls BACK ROOM 1) 1 Vacuum cleaner 2) 1 X-mas Tree 3) 4 Sets of X-mas bulbs 4) 5 Strains of X-mas lights 5) 1 X-mas plate 6) 1 X-mas bowl 7) 10 Tanning bed towels 8) Miscellaneous Holiday Decorating/Themes 9) 1 First aid kit FITNESS FACILITY 1) 1 Life Fitness 8500 Treadmill 2) 1 PS Four Universal Weight machine 3) 1 Water cooler (rented) 4) 2 Vending machines (rented) MODEL 1) 2 Cushion Sofa 2) 1 Arm Chair (leased) 3) 1 Glass Sofa Table 13 Page 3 4) 1 Glass dining table (leased) 5) 4 Fabric chairs (leased) 6) 2 Wreaths 7) 5 Hanging pictures 8) 1 Shower curtain 9) 1 Bath accessories 10) 1 Larger white sofa 11) 1 Cherry finish writing table 12) 1 Cherry finish matching chair 13) 4 Picture frames 14) 1 Queen size oak bed 15) 1 Full size mattress 16) 4 Lamps 17) 1 Shower Curtain/matching bath supplies 18) 1 Ficus tree 19) 1 Steel teapot 20) 1 Dish plate stand 21) 1 Wicker basket with ivy 22) 1 Green vase 23) 1 Tree 24) 1 Valence for window GUEST SUITE 1) 1 Chair 2) 1 Queen size bed 3) 1 Dresser 4) 2 Floor lamps 5) 1 Couch 6) 1 Round dining table 7) 4 Steel tables 8) 1 Glass sofa table 9) 1 Black TV stand 10) 1 Fisher TV 19" 92738921 11) 3 Night stands 12) 2 Shower curtains 13) 3 Lamps 14) 1 Digital Clock 15) 1 Dresser 16) 1 Framed picture MAINTENANCE SHOP 1) 1 Bench grinder 2) 1 Water heater element tool 3) 1 Tile cutter 4) 1 Hand snake 5) I Rekeying kit 6) 1 Pool test kit 7) 1 Refrigerator 8) 1 Faring tool 14 Page 4 9) 1 Water heater socket 10) 2 Extension cords 11) 4 Motorola radios 12) 1 ASM 400 Paint gun 13) 1 Key machine 14) 1 Appliance dolly 15) 1 Extension ladder 16) 1 Grinder 17) 1 Sledge hammer 18) 1 Rotor 19) 1 Shovel 20) 1 Snow blower 21) 1 Snow shovel 22) 1 Flare tool 23) 1 Shop vacuum 24) 1 12 Foot ladder 25) 2 Stem pullers 26) 1 Golf cart 27) 1 Gallon gas can 28) 1 Small leaf blower 29) 2 Bifold doors 30) 2 Stoves 31) 2 Dishwashers 32) 2 Range hoods 33) 1 Fire safe box POOL ROOM 1) 7 Outside pool tables 2) 28 Pool chairs 3) 35 Lounge chairs 4) 1 Grill 5) 1 Portable pump 6) 1 Emergency sign 7) 1 No Lifeguard sign 8) 1 Round pool buoy 9) 1 Pool net 10) 1 Vacuum hose 11) 1 Pool rules sign 12) 5 Umbrellas 14) 4 Water hoses 15) 1 Life board 16) 1 Rope 15 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 1) Property sign [PICTURE] 16 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 2) Typical architecture Note: decks [PICTURE] Photo No.: 3) #230 Composition shingles, replaced in 1991 [PICTURE] 17 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 4) Typical transformer on property Note: rust on exterior [PICTURE] Photo No.: 5) A/C condensor w/electrical disconnects Stucco on frame, 3-tab comp asphalt 230 lb roofing [PICTURE] 18 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 6) Metered electrical meters located in lower level of each building [PICTURE] Photo No.: 7) Unprotected dumpster create an unattractive appearance [PICTURE] 19 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 8) Exterior lighting on building [PICTURE] Photo No.: 9) Block wall on concrete slab [PICTURE] 20 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 10) Typical breaker box in each unit [PICTURE] Photo No.: 11) Cooper domestic wterlines, DWV-PVC and Badger disposals [PICTURE] 21 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 12) Each unit has Bryant air handler Note: 52 Gallon Bryant hotwater heater electric [PICTURE] Photo No.: 13) GFI in bathroom of each unit [PICTURE] 22 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 14) Typical fireplace in most units [PICTURE] Photo No.: 15) Typical fire extinguisher in the stairwell of each building [PICTURE] 23 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 16) Each building equipped with sewer cleanout [PICTURE] Photo No.: 31) Rotted railroad ties for the lower level patios [PICTURE] 24 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 18) Fill dirt needed around lower patio enclosures [PICTURE] Photo No.: 19) Lower patios and enclosures Note: Each has a drain in the bottom, however, drainage is a problem [PICTURE] 25 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 20) Typical problem w/soffit [PICTURE] Photo No.: 21) Warped, loose, shrunk and knotthole problems in 18 year old cedar siding [PICTURE] 26 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 22) Note: Problem with cedar siding warped, and shrinking [PICTURE] Photo No.: 23) Note: Siding has slid over window - entire area is loose [PICTURE] 27 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 24) Broken cedar siding [PICTURE] Photo No.: 25) Typical sidewalk trip hazard [PICTURE] 28 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 26) Sidewalk trip hazard [PICTURE] Photo No.: 27) Broken sidewalk [PICTURE] 29 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 28) Playground [PICTURE] Photo No.: 28) Basketball court [PICTURE] 30 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 30) Volleyball Court [PICTURE] Photo No.: 31) Unstained decking adjacent to pool near clubhouse [PICTURE] 31 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 32) Clubhouse furnace and hot water heater [PICTURE] Photo No.: 33) Swimming Pool [PICTURE] 32 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE, CINCINNATI, OH 45249 Photo No.: 34) Fitness Center [PICTURE] Photo No.: 35) Tennis Court [PICTURE] 33 SYCAMORE CREEK APARTMENTS 12131 SYCAMORE TERRACE CINCINNATI, OH 45249 Photo No.: 36) Tennis Court damage [PICTURE] 34 COMMUNITY MAP [COMMUNITY MAP] [LOGO] SYCAMORE CREEK APARTMENTS 12131 Sycamore Terrace Drive - Cincinnati, Ohio 45249 - (513) 489-7193 Fax (513) 489-9382 EX-99.9 42 SUMMARY OF APPRAISAL-TIMBER RIDGE APARTMENTS 1 EXHIBIT 99.9 [APPRAISAL COMPANY OF AMERICA LETTERHEAD] June 12, 1998 Ms. Mary Kahl Regional Vice President INSIGNIA RESIDENTIAL GROUP 12159 Sycamore Terrace Drive Apartment #E Cincinnati, Ohio 45249 RE: TIMBER RIDGE APARTMENTS 11600 TIMBER RIDGE LANE SHARONVILLE, OH 45241 248 RESIDENTIAL APARTMENTS Dear Ms. Kahl: In accordance with your request, we have inspected and appraised the above referenced property for the purpose of estimating fair market value. The interest appraised is fee simple. Attached to this letter you will find a report which states the purpose, identifies the property rights analyzed, defines value, identifies the property, and includes the facts, data, reasoning, certifications, and assumptions and limiting conditions underlying our estimate. This appraisal is an estimate of the total value of all the property. Taking into account all the pertinent facts that affect value, the Market Value estimate of the subject property, as of April 3, 1998, is: NINE MILLION FIVE HUNDRED THOUSAND DOLLARS ... $ 9,500,000.00 Respectfully submitted, /s/ HOWARD G. THIEMANN /s/ MARK R. TOENNIS - ----------------------------------- ----------------------------- Howard G. Thiemann SRA, ASA, RMU Mark R. Toennis, ASA Chairman of the Board Appraiser [SEALS] EX-99.10 43 SUMMARY OF APPRAISAL-LANDMARK WOODS APARTMENT 1 EXHIBIT 99.10 [JOSEPH J. BLAKE AND ASSOCIATES, INC. LETTERHEAD] October 14, 1997 Ms. Leigh Walters INSIGNIA FINANCIAL GROUP, INC. 1 Insignia Financial Plaza Greenville, South Carolina 29602 RE: LANDMARK WOODS APARTMENTS 1400 CHEROKEE ROAD FLORENCE, SOUTH CAROLINA 29501 Dear Ms. Walters: In accordance with your request, we have inspected and prepared an appraisal of the above-referenced real property. The subject consists of a garden apartment complex containing 104 units in thirteen two-story buildings, on approximately 7.8 acres. The property is located on the south side of Cherokee Road opposite Saluda Drive in the City of Florence, South Carolina. The subject was constructed in 1973, is of average to good quality and appeared to be in average to good condition. On-site amenities consist of a pool and meeting room. Current occupancy as of the date of inspection was 86.5%, which reflects non-renewal of seven units by a corporate client in May 1997. Occupancy rates at competing apartment developments in and around Florence are consistently in the 95% to 99% range, and our estimate of value assumes a similar occupancy level for the subject. The purpose of the appraisal is to estimate the market value of the property's fee simple interest. Our appraisal is intended to conform with, and is subject to, the Code of Professional Ethics and Standards of Professional Practice as set forth by the Appraisal Institute, as well as the Uniform Standards of Professional Appraisal Practice (USPAP) and Title XI of the Financial Institutions Recovery and Enforcement Act of 1989 (FIRREA). The appraisal is not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 2 Ms. Leigh Walters October 14, 1997 Page Two Attached hereto is our appraisal report which describes our investigation and analyses, together with Certification, Basic Assumptions and Limiting Conditions, upon which we have based our opinions of value. It is our opinion that the market value of the fee simple interest in the property, free and clear of financing, as of September 15, 1997, is: THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS $3,800,000 If you have any questions or comments, please do not hesitate to contact the undersigned. Sincerely, JOSEPH J. BLAKE & ASSOCIATES, INC. /s/ JOHN CICERO /s/ LEE GRUBMAN John Cicero, MAI Lee Grubman Vice President Associate South Carolina Temporary Practice Permit #758-97 EX-99.11 44 SUMMARY OF APPRAISAL-SCOTCH PINES EAST APARTMENTS 1 EXHIBIT 99.11 [JOSEPH J. BLAKE AND ASSOCIATES, INC. LETTERHEAD] August 27, 1997 Mr. David Turner Lehman Brothers 3 World Financial Center, 12th Floor 200 Vesey Street New York, New York 10285 Reference: Appraisal report of the Scotch Pines East Apartments located at 915 East Drake Road, Fort Collins, Larimer County, Colorado Dear Mr. Turner: In compliance with your request, we have appraised the above captioned property as of August 14, 1997 in "as is" condition. The ensuing report and final estimate of value has been based upon a careful and personal inspection of the property and upon research into various factors that tend to influence value. Briefly described, the subject is improved with a two-story, walk-up, garden type apartment complex containing 102 units. Scotch Pines East is situated on 4.7258 (plus or minus) acres located along the south side of Drake Road, and more specifically being situated at the southwest corner of Drake Road and Edinburgh Street in the east-central portion of Fort Collins, Larimer County, Colorado. The property was reportedly constructed in 1977 and consists of concrete slab foundations, wood structural framing, wood siding exteriors with pitched wood shake and composition shingle roofs. The project offers units ranging in size from 392 to 894 square feet (525 square foot average unit size) and contains a total net rentable area of 53,516 (plus or minus) square feet. Site improvements consist of laundry facilities, management office/clubhouse, open parking and mature landscaping. The improvements were in good condition. The property residents also have access to the adjacent clubhouse, swimming pool and two tennis courts of the Scotch Pine Condominiums which border the subject to the west. The complex was 97% occupied as of the effective date of appraisal. The analysis and results of our investigation are submitted in the accompanying report which has been prepared in conformity with and is subject to the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, FIRREA and the Uniform Standards of the Professional Appraisal Practice as promulgated by the Appraisal Foundation. 2 Mr. David Turner August 27, 1997 Page 2 of 2 The purpose of this appraisal is to estimate the "as is" market value of the fee simple estate of the subject, as of August 14, 1997. Your attention is directed to the Basic Assumptions and Limiting Conditions section of this report, which outlines the scope and use of this report. We further direct you to the Executive Summary which outlines highlights and conclusions of this report. Lehman Brothers and its affiliates, rating agencies and a limited number of investors involved in the Securitization (as defined below), may use and rely upon the report in connection with a planned loan securitization involving the subject property (the "Securitization"), including without limitation, utilizing selected information in the Report relating to the Securitization and Joseph J. Blake & Associates, Inc. agrees to cooperate in answering questions by any of the above parties in connection with the Securitization. VALUATION ESTIMATE Attached is our report which describes the investigation and analysis, together with our Certification and Basic Assumptions and Limiting Conditions upon which we have based our opinion that the estimated "as is" market value of the fee simple estate of the subject, as of August 14, 1997, was: $3,900,000 THREE MILLION NINE HUNDRED THOUSAND DOLLARS Respectfully submitted, JOSEPH J. BLAKE AND ASSOCIATES, INC. /s/ ARTURO SINGER - ----------------------------------- Arturo Singer, MAI Vice President/Regional Manager Certified General Real Estate Appraiser No. CG40001604 /s/ ROBERT S. HAWKINS - ----------------------------------- Robert S. Hawkins Senior Associate EX-99.12 45 SUMMARY OF APPRAISAL-SYCAMORE CREEK APARTMENTS 1 EXHIBIT 99.12 [R.A. JACKSON APPRAISAL CO., INC. LETTERHEAD] August 29, 1997 Mr. Michael T. Murphy Marvin F. Poer & Company 2211 York Road, Suite 300 Oak Brook, IL 60521 REF.: Sycamore Creek Apartments 12131 Sycamore Terrace Drive Symmes Township, OH 45249 Dear Mr. Murphy: Pursuant to your request, we have inspected the above captioned property, analyzed current market conditions for this type of property, and prepared the following appraisal report. The property that is the subject of the appraisal is a 295 unit garden apartment complex containing approximately 266,350 SF of net leasable area. Construction of the improvements was completed around 1979, and the site contains approximately 22 acres. We have communicated our conclusions to you in a summary type appraisal report which is consistent with your knowledge of the subject and your needs. This style of report communicates only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the Appraisers' opinions of value for the subject. Supporting documentation concerning details of the process have been retained in our files. The depth of discussion contained in this report is specific to your needs and for the intended use stated below. The Appraiser are not responsible for unauthorized use of this report. This letter of transmittal is not to be construed as an appraisal, but is only part of the report that follows. The purpose of this appraisal will be to estimate the current market value, for the Fee Simple interest, as of January 1, 1996. The function of the report is to be used for an anticipated hearing before the Hamilton County Board of Revision. Considering the property type, primary weight will be given to the value conclusion from the Income Approach. The Sales Comparison and Cost Approaches were also detailed and provide support for the value conclusion from the Income Approach. The scope of the analysis included collection and examination of various market data that was utilized in our conclusions and appropriate approaches of estimating value. The appraisal and conclusions are based on the attached Certification and Underlying Assumptions and Limiting Conditions contained on the following pages. 2 Mr. Michael T. Murphy Page 2 REF.: Sycamore Creek Apartments August 29, 1997 By virtue of our inspection, investigation and analysis, it is the opinion of the Appraisers that the market value for the Fee Simple Title of the Sycamore Creek Apartments described herein, as of January 1, 1996, is... NINE MILLION ONE HUNDRED THOUSAND DOLLARS $9,100,000 Respectfully submitted, R. A. JACKSON APPRAISAL CO., INC. /s/ MARTIN E. SCHOLZ /s/ RAYMOND A JACKSON - ---------------------------------- ----------------------------------- Martin E. Scholz Raymond A. Jackson, MAI, CRE President EX-99.13 46 SUMMARY OF APPRAISAL-BUCCANEER TRACE APARTMENTS 1 EXHIBIT 99.13 [JOSEPH J. BLAKE AND ASSOCIATES, INC. LETTERHEAD] March 19, 1997 Ms. Leigh Watters Insignia Financial Group Insignia Financial Plaza PO Box 1089 Greenville, South Carolina 29602 RE: Appraisal Report of the Buccaneer Trace Apartments 55 East Deerwood Road Savannah, Chatham County, Georgia 31410 Dear Ms. Watters: As per your request we have inspected and appraised the above-captioned property as of March 18, 1997. This complete, self-contained appraisal and final estimate of value have been based upon an inspection of the property and on research into various factors that tend to influence value. Briefly described, the subject consists of a 208-unit apartment complex which was constructed in 1987. The complex consists of 28, two-story buildings, with a net rentable area of 189,424+/- square feet. Additionally, the subject has a one-story clubhouse/leasing office with 2,500+/- square feet, and 18,320+/- SF of balconies, 20,800+/- SF of breezeways and stairways, and a 500+/- SF work shed. The buildings are of wood frame construction, with wood siding exteriors and asphalt shingle roofs. Project amenities include a swimming pool, 3 lighted tennis courts and a clubhouse. Unit amenities include wall to wall carpeting, individual outside storage, ceiling fans, microwave ovens, frost free refrigerators with ice makers, fireplaces, wet bars, patios/balconies, blinds, dishwashers and washer/dryer connections. The improvements are situated on a 22.02+/- acre, irregularly shaped site with frontage along Deerwood Road. There is only one entrance to the property. The site is zoned "PUD", Planned Unit Development - Community, under the jurisdiction of Chatham County, Georgia. The purpose of this appraisal is to provide an estimate of the market value of the fee simple estate, of the subject, as of March 18, 1997. The analysis, opinions and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP), and the requirements of the State of Georgia for State Certified Real Estate Appraisers. The reported analyses, opinions and conclusions were developed and this report has been prepared in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. 2 March 19, 1997 Ms. Leigh Watters Page Two of Two The use of this report is subject to the requirements of the State of Georgia relating to review by the Real Estate Appraisal Subcommittee of the Georgia Real Estate Commission. The exposure and marketing time for this property is estimated to be within 12 months, based upon the "as is" market value. Inherent in the value conclusion is the assumption that all information and materials provided to the appraisers by the client and property management, are correct. Attached is the complete, self-contained appraisal report which describes the investigation and analysis, together with the Basic Assumptions and Limiting Conditions upon which we have based our opinion, that the estimated fee simple prospective market value of the subject, as of March 18, 1997, is: EIGHT MILLION EIGHT HUNDRED THOUSAND DOLLARS $8,800,000 Attached hereto is the report indicating the findings for the estimate of value shown above. Any separation of the signature pages from the balance of the report invalidates the conclusion. Respectfully submitted, JOSEPH J. BLAKE AND ASSOCIATES, INC. /s/ TED ALLEN - ----------------------------------- Ted Allen, MAI, Principal Certified Real Estate Appraiser State of Georgia - #C001855 /s/ JOSEPH W. HATZELL - ----------------------------------- Jospeh W. Hatzell, Senior Associate Certified Real Estate Appraiser State of Georgia - #C002757 -----END PRIVACY-ENHANCED MESSAGE-----